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- 4630 John Hancock Investment Trust III (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 Attorney 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: October 31, 2005 ITEM 1. REPORT TO SHAREHOLDERS. |
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Table of contents |
Your fund at a glance |
page 1 |
Managers’ report |
page 2 |
A look at performance |
page 6 |
Growth of $10,000 |
page 7 |
Your expenses |
page 8 |
Fund’s investments |
page 10 |
Financial statements |
page 13 |
Trustees & officers |
page 31 |
For more information |
page 37 |
To Our Shareholders, |
I am pleased to be writing to you as the new President and Chief Executive Officer of John Hancock Funds, LLC, following the depar- ture of James A. Shepherdson to pursue other opportunities. In addition, on July 25, 2005, your fund’s Board of Trustees appointed me to the roles of President and Chief Executive Officer of your fund. As a means of introduction, I have been involved in the mutual fund industry since 1985. I have been with John Hancock Funds for the last 15 years, most recently as executive vice president of retail sales and marketing and a member of the company’s executive and investment committees. In my former capacity, I was responsible for all aspects of the distribution and marketing of John Hancock Funds’ open-end and closed-end funds. Outside of John Hancock, I have served as Chairman of the Investment Company Institute (ICI) Sales Force Marketing Committee since September 2003. It is an exciting time to be at John Hancock Funds, and I am grateful for the opportunity to lead and shape its future growth. With the acquisition of John Hancock by Manulife Financial Corporation in April 2004, we are receiving broad support toward the goal of provid- ing our shareholders with excellent investment opportunities and a more complete lineup of choices for the discerning investor. For one example, we have recently added five “Lifestyle Portfolio” funds-of-funds that blend multiple fund offerings from internal and external money managers to create a broadly diversified asset alloca- tion portfolio. Look for more information about these exciting additions to the John Hancock family of funds in the near future. Although there has been a change in executive-level management, rest assured that the one thing that never wavers is John Hancock Funds’ commitment to placing the needs of shareholders above all else. We are all dedicated to the task of working with you and your financial advisors to help you reach your long-term financial goals. Sincerely, |
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Keith F. Hartstein, President and Chief Executive Officer |
This commentary reflects the CEO’s views as of October 31, 2005. They are subject to change at any time. |
YOUR FUND AT A GLANCE |
The Fund seeks long-term capital appreciation by normally investing at least 80% of its assets in equity securities of companies located in China, Hong Kong or Taiwan. |
Over the last five months |
- The Chinese government revalued its currency, the yuan, by 2% against the U.S. dollar and laid the groundwork for further, gradual adjustments.
- The government’s efforts to slow the economy had mixed success, as third-quarter GDP growth checked in at a still-robust 9.4%.
- The Fund underperformed its benchmark index but finished well ahead of its peer group average.
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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 | |
13.7% | China Mobile (Hong Kong) Ltd. |
9.6% | PetroChina Co., Ltd. |
5.3% | CNOOC Ltd. |
4.2% | China Petroleum & Chemical Corp. |
4.0% | China Life Insurance Co. Ltd. |
3.9% | China Telecom Corp. Ltd. |
2.9% | China Netcom Group Corp. (Hong Kong) Ltd. |
2.6% | Citic Pacific Ltd. |
2.5% | China Resources Power Holding Co., Ltd. |
2.1% | Hong Kong & China Gas Co., Ltd. |
As a percentage of net assets on October 31, 2005. |
1
BY PAULINE DAN, CFA AND SETON LOR, PORTFOLIO MANAGERS |
MANAGERS’ REPORT |
JOHN HANCOCK Greater China Opportunities Fund |
Stocks in the Greater China region generally registered mediocre performances since the Fund was launched in June through the end of October. One negative factor was the Chinese government’s attempt to moderate economic growth through tighter monetary policy, particularly during the first and second quarters of 2005. Although these attempts undermined investor sentiment to some degree, they produced only a slight deceleration in the economy. In October it was reported that during the third quarter the Chinese economy expanded at a still-torrid pace of 9.4%, down just slightly from the 9.5% rate recorded for all of 2004.
Also weighing on investors’ minds for most of the period was tension over trade issues between China and the United States. One focus of the controversy has been the huge trade deficit created in part by China’s insistence on maintaining a fixed peg between its currency, the yuan, and the U.S. dollar. In July the Chinese government took a step toward addressing these concerns, revaluing the yuan by two percent and announcing that going forward it would be allowed to trade within a narrow band and pegged against a basket of currencies. Largely as a result of this development, Greater China stocks erased some of their earlier losses, rallying from late July through mid-September.
“Stocks in the Greater China region generally registered mediocre performances since the Fund was launched in June...” |
The market weakened again near the end of the period, as unfavorable seasonal factors asserted themselves and a fresh outbreak of the avian flu was reported in the northern province of Inner Mongolia. Although the outbreak was controlled and did not spread to any new locations, health officials worldwide continued to express concern about the possibility of further transmission of the deadly virus from birds to humans.
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Pauline Dan
Seton Lor
Looking at performance
From its inception on June 8, 2005, through October 31, 2005, John Hancock Greater China Opportunities Fund’s Class A, Class B, Class C and Class I shares returned 2.40%, 2.10%, 2.10% and 2.60%, respectively, at net asset value. By comparison, the average China region fund returned -1.42%, according to Lipper, Inc.1, while the Morgan Stanley Capital International (MSCI) China Free Index finished with a 5.37% return. 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.
Fund takes a defensive stance
Given the likelihood of a slowing Chinese economy, the Fund maintained a defensive positioning during the period, with overweightings in consumer staples and power utilities. On an absolute basis, energy and telecommunication services, which accounted for the two largest sector weightings in both the Fund and our benchmark index, performed best. Energy, of course, was aided by rising crude oil and natural gas prices, while telecom services stocks bene-fited from the yuan’s appreciation, as investors were attracted by their yuan-based revenues and the fact that many of their costs were dollar-based. That said, the Fund’s performance versus the index suffered because of underweightings in both sectors.
Fund strategy
In managing the Fund, we employ top-down analysis of economic and political trends to guide our sector allocations, complemented by extensive quantitative and qualitative research at the company level. We look for stocks capable of generating consistent returns on equity, along with a competitive market position, reasonable valuation and acceptable debt levels, among other factors. Discussions with management also figure prominently in our work, and we normally log somewhere between 400 and 500 visits a year to companies we own or are following closely.
“...energy and telecommunication services, which accounted for the two largest sector weightings in both the Fund and our benchmark index, performed best.” 3 |
Sector |
distribution2 |
Telecommunication |
services -- 22% |
Energy -- 22% |
Industrials -- 13% |
Utilities -- 7% |
Financials -- 7% |
Materials -- 5% |
Consumer |
discretionary -- 4% |
Consumer |
staples -- 2% |
Information |
technology -- 2% |
Health care -- 1% |
Contributors and detractors
China Mobile Ltd., the country’s largest wireless provider and also the Fund’s largest holding at period end, was one of its best contributors. Strong subscriber growth and the revaluation of the yuan both boosted the stock. Much of the equipment used in building the company’s infrastructure is purchased from companies based in the United States and Europe, and China Mobile therefore stood to benefit from the conversion of the yuan to depreciated dollars or euros. In the energy sector, PetroChina Co., Ltd. was a strong performer, aided by crude oil prices that increased for most of the period, briefly crossing the $70-per-barrel level at the end of August, as Hurricane Katrina battered the U.S. Gulf Coast region. Another contributor was China Resources Land Ltd., a real estate holding whose share price benefited from a strong rebound in the second and third quarters of 2005 following a steep first-quarter sell-off triggered by speculation that the government might impose higher capital gains taxes and transaction taxes on the property group. Both China Mobile and China Resources are Hong Kong-listed securities.
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Detractors to performance included a transportation stock, Guangshen Railway Co., Ltd., which was hurt by slower-than-expected growth in passenger traffic. Also holding back our results was Yanzhou Coal Mining Co., Ltd. Flat coal prices and the higher costs associated with tighter government regulation of safety procedures led to lower-than-expected earnings growth. Finally, Hong Kong-listed China National Aviation Co., Ltd. performed poorly due in part to high fuel prices. The regional airline also was hurt by the threat of reduced passenger traffic due to concerns about avian
4
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flu -- despite the fact that only a handful of humans have contracted the disease and there have been no recorded cases associated with air travel.
Outlook
Although the Chinese economy has slowed only marginally so far, during the next several quarters we expect to see further evidence of the government’s efforts to rein in growth. Additionally, the possibility of further adjustments to the yuan/U.S. dollar exchange rate means that Chinese exporters face considerable uncertainty, as demand for their products from abroad depends in part on currency exchange rates and could suffer from a stronger yuan. Consequently, we favor stocks driven by domestic demand rather than export-driven opportunities. In the energy sector, prices could remain high by historical standards, but it is unclear whether they will continue to increase much from current levels. Going forward, we anticipate placing greater emphasis on companies further down the energy food chain, such as refineries, distributors and energy services firms, as we think they could have better earnings growth prospects at this stage of the energy cycle than exploration and production companies.
“...we favor stocks driven by domestic demand rather than export-driven opportunities.” |
This commentary reflects the views of the portfolio management team through the |
end of the Fund’s period discussed in this report. The team’s 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. |
International investing involves special risks such as political, economic and currency |
risks and differences in accounting standards and financial reporting. Sector investing |
is subject to greater risks than the market as a whole. |
1 Figures from Lipper, 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 October 31, 2005. |
5
A LOOK AT PERFORMANCE |
For the period ended October 31, 2005 |
Class A | Class B | Class C | Class I1 | |
Inception date | 6-8-05 | 6-8-05 | 6-8-05 | 6-8-05 |
Cumulative total returns with maximum sales charge (POP) | ||||
Since inception | -2.72% | -2.90% | 1.10% | 2.60% |
Performance figures assume all distributions are reinvested. Returns with maximum sales charge 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.
1For certain types of investors as described in the Fund’s Class I share prospectus. |
GROWTH OF $10,000 |
This chart shows what happened to a hypothetical $10,000 investment in Class A shares for the period indicated. For comparison, we’ve shown the same investment in the MSCI China Free Index.
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Class B | Class C | Class I1 | |
Period beginning | 6-8-05 | 6-8-05 | 6-8-05 |
Without sales charge | $10,210 | $10,210 | $10,260 |
With maximum sales charge | 9,710 | 10,110 | 10,260 |
Index | 10,537 | 10,537 | 10,537 |
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 October 31, 2005. Performance of the classes will vary based on the difference in sales charges paid by shareholders investing in the different classes and the fee structure of those classes.
MSCI China Free Index -- is an unmanaged market capitalization-weighted index of Chinese companies available to non-domestic investors.
It is not possible to invest directly in an index. Index figures do not reflect sales charges and would be lower if they did.
1 For certain types of investors as described in the Fund’s Class I share prospectus.
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 June 9, 2005, inception of the Fund, with the same investment held until October 31, 2005. |
Account value | Expenses paid | |
$1,000.00 | Ending value | during period |
on 6-9-05 | on 10-31-05 | ended 10-31-051 |
Class A | $1,024.00 | $7.79 |
Class B | 1,021.00 | 10.51 |
Class C | 1,021.00 | 10.51 |
Class I | 1,026.00 | 5.84 |
Together with the value of your account, you may use this information to estimate the operating expenses that you paid over the period. Simply divide your account value at October 31, 2005 by $1,000.00, then multiply it by the “expenses paid” for your share class from the table above. For example, for an account value of $8,600.00, the operating expenses should be calculated as follows:
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8
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% annual return before expenses (which is not your fund’s actual return). It assumes an account value of $1,000.00 on June 9, 2005, with the same investment held until October 31, 2005. Look in any other fund shareholder report to find its hypothetical example and you will be able to compare these expenses.
Account value | Expenses paid | |
$1,000.00 | Ending value | during period |
on 6-9-05 | on 10-31-05 | ended 10-31-051 |
Class A | $1,012.20 | $7.75 |
Class B | 1,009.50 | 10.45 |
Class C | 1,009.50 | 10.45 |
Class I | 1,014.10 | 5.80 |
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 1.93%, 2.63%, 2.62% and 1.45% 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 since beginning of operations of the Fund/365 or 366 (to reflect the inception period). |
9
F I N A N C I A L S TAT E M E N T S |
FUND’S INVESTMENTS |
Securities owned by the Fund on October 31, 2005 |
This schedule consists of one main category: common stocks.
Common stocks are further broken down by industry group.
Issuer | Shares | Value |
Common stocks 84.89% | $12,817,265 | |
(Cost $13,185,329) | ||
Agricultural Products 0.49% | 74,171 | |
COFCO International Ltd. (Hong Kong) | 200,000 | 74,171 |
Airlines 0.88% | 132,734 | |
China National Aviation Co., Ltd. (Hong Kong) | 700,000 | 132,734 |
Airport Services 1.17% | 177,366 | |
Beijing Capital International Airport Co., Ltd. (China) | 440,000 | 177,366 |
Aluminum 0.92% | 138,700 | |
Aluminum Corp. of China Ltd. (China) | 230,000 | 138,700 |
Apparel, Accessories and Luxury Goods 0.39% | 58,808 | |
Bauhaus International Holdings Ltd. (Hong Kong) | 470,000 | 58,808 |
Auto Parts & Equipment 0.76% | 114,546 | |
Weichai Power Co., Ltd. (China) | 60,000 | 114,546 |
Automobile Manufacturers 1.83% | 275,723 | |
Brilliance China Automotive Holdings Ltd. (Hong Kong) | 500,000 | 65,787 |
Denway Motors Ltd. (Hong Kong) | 700,000 | 209,936 |
Biotechnology 0.63% | 95,197 | |
Global Bio-chem Technology Group Co., Ltd. (Hong Kong) | 240,000 | 95,197 |
Brewers 0.39% | 59,208 | |
Tsingtao Brewery Co., Ltd. (China) | 60,000 | 59,208 |
Computer Hardware 0.84% | 127,445 | |
Lenovo Group Ltd. (Hong Kong) | 260,000 | 127,445 |
Computer Storage & Peripherals 0.18% | 26,727 | |
Great Wall Technology Co., Ltd. (China) | 140,000 | 26,727 |
Construction Materials 1.04% | 156,727 | |
Anhui Conch Cement Co., Ltd. (China) | 150,000 | 156,727 |
See notes to financial statements.
10
F I N A N C I A L S TAT E M E N T S |
Issuer | Shares | Value |
Diversified Banks 0.87% | $131,057 | |
Bank of Communications Ltd. (China) (I) | 320,000 | 131,057 |
Diversified Metals & Mining 2.25% | 339,046 | |
Jiangxi Copper Co., Ltd. (China) | 150,000 | 71,107 |
Minmetals Resources Ltd. (Hong Kong) (I) | 648,000 | 139,591 |
Yanzhou Coal Mining Co., Ltd. (China) | 200,000 | 128,348 |
Electric Utilities 4.64% | 701,271 | |
China Resources Power Holdings Co., Ltd. (Hong Kong) | 630,000 | 377,885 |
Datang International Power Generation Co., Ltd. (China) | 100,000 | 70,946 |
Huaneng Power International, Inc. (China) | 380,000 | 252,440 |
Food Distributors 1.40% | 212,065 | |
China Yurun Food Group Ltd. (Hong Kong) (I) | 480,000 | 212,065 |
Food Retail 0.39% | 59,595 | |
Lianhua Supermarket Holdings Ltd. (China) | 55,000 | 59,595 |
Forest Products 0.02% | 2,472 | |
Sino-Forest Corp. (Canada) (I) | 900 | 2,472 |
Gas Utilities 2.76% | 416,132 | |
Hong Kong & China Gas Co. Ltd. (Hong Kong) | 150,000 | 309,584 |
Xinao Gas Holdings Ltd. (China) | 140,000 | 106,548 |
Highways & Railtracks 1.44% | 217,321 | |
Anhui Expressway Co., Ltd. (China) | 270,000 | 136,700 |
Hopewell Highway Infrastructure Ltd. (Hong Kong) | 125,000 | 80,621 |
Home Furnishings 0.83% | 124,801 | |
Kasen International Holdings Ltd. (China) (I) | 450,000 | 124,801 |
Industrial Conglomerates 7.11% | 1,073,623 | |
Beijing Enterprises Holdings Ltd. (Hong Kong) | 80,000 | 122,285 |
China Merchants Holdings International Co., Ltd. (Hong Kong) | 114,000 | 221,314 |
China Resources Enterprise Ltd. (Hong Kong) | 150,000 | 221,546 |
Citic Pacific Ltd. (Hong Kong) | 150,000 | 387,947 |
Guangzhou Investment Co., Ltd. (Hong Kong) | 1,280,000 | 120,531 |
Integrated Oil & Gas 13.81% | 2,085,819 | |
China Petroleum & Chemical Corp. (China) | 1,600,000 | 639,806 |
PetroChina Co., Ltd. (China) | 1,900,000 | 1,446,013 |
Integrated Telecommunication Services 6.81% | 1,028,720 | |
China Netcom Group Corp. (Hong Kong) Ltd. (Hong Kong) | 280,000 | 442,446 |
China Telecom Corp. Ltd. (China) | 1,800,000 | 586,274 |
See notes to financial statements. |
11
F I N A N C I A L S TAT E M E N T S | ||
Issuer | Shares | Value |
Life & Health Insurance 3.98% | $601,269 | |
China Life Insurance Co., Ltd. (China) (I) | 825,000 | 601,269 |
Marine 1.56% | 235,477 | |
China Shipping Development Co., Ltd. (China) | 230,000 | 161,693 |
Pacific Basin Shipping Ltd. (Hong Kong) | 160,000 | 73,784 |
Oil & Gas Drilling 0.95% | 143,376 | |
China Oilfield Services Ltd. (China) | 390,000 | 143,376 |
Oil & Gas Exploration & Production 5.31% | 801,241 | |
CNOOC Ltd. (Hong Kong) | 1,230,000 | 801,241 |
Oil & Gas Refining, Marketing & Transportation 1.73% | 261,495 | |
Sinopec Zhenhai Refining & Chemical Co., Ltd. (China) | 224,000 | 261,495 |
Railroads 0.77% | 116,094 | |
Guangshen Railway Co., Ltd. (China) | 400,000 | 116,094 |
Real Estate Management & Development 2.13% | 320,935 | |
China Resources Land Ltd. (Hong Kong) | 580,000 | 158,984 |
Hopewell Holdings Ltd. (Hong Kong) | 35,000 | 85,329 |
Silver Grant International Industries Ltd. (Hong Kong) | 300,000 | 76,622 |
Steel 0.80% | 119,964 | |
Maanshan Iron & Steel Co., Ltd. (China) | 400,000 | 119,964 |
Systems Software 0.66% | 100,253 | |
SinoCom Software Group Ltd. (China) | 134,000 | 100,253 |
Wireless Telecommunication Services 15.15% | 2,287,887 | |
China Mobile (Hong Kong) Ltd. (Hong Kong) | 465,000 | 2,069,373 |
China Unicom Ltd. (Hong Kong) | 270,000 | 207,227 |
Comba Telecom Systems Holdings Ltd. (Hong Kong) | 50,000 | 11,287 |
Total investments 84.89% | $12,817,265 | |
Other assets and liabilities, net 15.11% | $2,281,329 | |
Total net assets 100.00% | $15,098,594 |
(I) | Non-income-producing security. |
Parenthetical disclosure of a foreign country in the security description represents country of a foreign issuer. 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. |
12
F I N A N C I A L S TAT E M E N T S |
ASSETS AND LIABILITIES |
October 31, 2005 |
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 $13,185,329) | $12,817,265 |
Cash | 1,214,099 |
Foreign cash at value (cost $1,015,740) | 1,014,966 |
Receivable for shares sold | 122,784 |
Dividends receivable | 6,473 |
Receivable from affiliates | 88,203 |
Total assets | 15,263,790 |
Liabilities | |
Payable for investments purchased | 50,489 |
Payable for shares repurchased | 43,386 |
Payable to affiliates | |
Management fees | 23,142 |
Distribution and service fees | 847 |
Other | 3,875 |
Other payables and accrued expenses | 43,457 |
Total liabilities | 165,196 |
Net assets | |
Capital paid-in | 15,395,546 |
Accumulated net realized gain on investments | |
and foreign currency transactions | 35,005 |
Net unrealized depreciation of investments | |
and translation of assets and liabilities | |
in foreign currencies | (368,834) |
Accumulated net investment income | 36,877 |
Net assets | $15,098,594 |
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 ($12,445,976 ÷ 1,215,437 shares) | $10.24 |
Class B ($1,360,885 ÷ 133,261 shares) | $10.21 |
Class C ($1,189,131 ÷ 116,483 shares) | $10.21 |
Class I ($102,602 ÷ 10,000 shares) | $10.26 |
Maximum offering price per share | |
Class A1 ($10.24 ÷ 95%) | $10.78 |
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. |
13
F I N A N C I A L S TAT E M E N T S |
OPERATIONS |
For the period ended October 31, 20051 |
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 | $107,405 |
Interest | 332 |
Total investment income | 107,737 |
Expenses | |
Investment management fees | 40,385 |
Class A distribution and service fees | 10,427 |
Class B distribution and service fees | 2,708 |
Class C distribution and service fees | 2,500 |
Class A, B and C transfer agent fees | 9,016 |
Class I transfer agent fees | 21 |
Registration and filing fees | 70,000 |
Professional fees | 19,104 |
Custodian fees | 18,203 |
Printing | 7,277 |
Miscellaneous | 1,897 |
Accounting and legal services fees | 1,010 |
Trustees’ fees | 42 |
Total expenses | 182,590 |
Less expense reductions | (101,379) |
Net expenses | 81,211 |
Net investment income | 26,526 |
Net realized and unrealized gain (loss) | |
Net realized gain on | |
Investments | 35,005 |
Foreign currency transactions | 3,507 |
Change in net unrealized depreciation of | |
Investments | (368,064) |
Translation of assets and liabilities in foreign currencies | (770) |
Net realized and unrealized loss | (330,322) |
Decrease in net assets from operations | ($303,796) |
1 | Beginning of operations from 6-9-05 through 10-31-05. |
See notes to financial statements. |
14
F I N A N C I A L S TAT E M E N T S |
CHANGES IN NET ASSETS |
This Statement of Changes in Net Assets shows how the value of the Fund’s net assets has changed since beginning of operations of the Fund. The difference reflects earnings less expenses, any investment gains and losses and the net of Fund share transactions. |
Period | |
ended | |
10-31-051 | |
Increase (decrease) in net assets | |
From operations | |
Net investment income | $26,526 |
Net realized gain | 38,512 |
Change in net unrealized depreciation | (368,834) |
Decrease in net assets resulting from operations | (303,796) |
From Fund share transactions | 15,402,390 |
Net assets | |
End of period2 | $15,098,594 |
1 | Beginning of operations from 6-9-05 through 10-31-05. |
2 | Includes accumulated net investment income of $36,877. |
See notes to financial statements. |
15
F I N A N C I A L H I G H L I G H T S |
FINANCIAL HIGHLIGHTS |
CLASS A SHARES |
The Financial Highlights show how the Fund’s net asset value for a
share has changed since beginning of operations of the Fund.
Period ended | 10-31-051 |
Per share operating performance | |
Net asset value, | |
beginning of period | $10.00 |
Net investment income2 | 0.03 |
Net realized and unrealized | |
gain on investments | 0.21 |
Total from | |
investment operations | 0.24 |
Net asset value, | |
end of period | $10.24 |
Total return3,4 (%) | 2.405 |
Ratios and supplemental data | |
Net assets, end of period | |
(in millions) | $12 |
Ratio of expenses | |
to average net assets (%) | 1.936 |
Ratio of adjusted expenses | |
to average net assets7 (%) | 4.446 |
Ratio of net investment income | |
to average net assets (%) | 0.686 |
Portfolio turnover (%) | 28 |
See notes to financial statements. |
16
F I N A N C I A L H I G H L I G H T S |
CLASS B SHARES
Period ended | 10-31-051 |
Per share operating performance | |
Net asset value, | |
beginning of period | $10.00 |
Net investment income2 | 0.02 |
Net realized and unrealized | |
gain on investments | 0.19 |
Total from | |
investment operations | 0.21 |
Net asset value, | |
end of period | $10.21 |
Total return3,4 (%) | 2.105 |
Ratios and supplemental data | |
Net assets, end of period | |
(in millions) | $1 |
Ratio of expenses | |
to average net assets (%) | 2.636 |
Ratio of adjusted expenses | |
to average net assets7 (%) | 5.146 |
Ratio of net investment income | |
to average net assets (%) | 0.436 |
Portfolio turnover (%) | 28 |
See notes to financial statements. |
17
F I N A N C I A L H I G H L I G H T S | |
CLASS C SHARES | |
Period ended | 10-31-051 |
Per share operating performance | |
Net asset value, | |
beginning of period | $10.00 |
Net investment income2 | 0.03 |
Net realized and unrealized | |
gain on investments | 0.18 |
Total from | |
investment operations | 0.21 |
Net asset value, end of period | $10.21 |
Total return3,4 (%) | 2.105 |
Ratios and supplemental data | |
Net assets, end of period | |
(in millions) | $1 |
Ratio of expenses | |
to average net assets (%) | 2.626 |
Ratio of adjusted expenses | |
to average net assets7 (%) | 5.136 |
Ratio of net investment income | |
to average net assets (%) | 0.616 |
Portfolio turnover (%) | 28 |
See notes to financial statements. |
18
F I N A N C I A L H I G H L I G H T S |
CLASS I SHARES |
Period ended | 10-31-051 |
Per share operating performance | |
Net asset value, | |
beginning of period | $10.00 |
Net investment income2 | 0.03 |
Net realized and unrealized | |
gain on investments | 0.23 |
Total from | |
investment operations | 0.26 |
Net asset value, end of period | $10.26 |
Total return3,4 (%) | 2.605 |
Ratios and supplemental data | |
Net assets, end of period | |
(in millions) | --8 |
Ratio of expenses | |
to average net assets (%) | 1.456 |
Ratio of adjusted expenses | |
to average net assets7 (%) | 3.966 |
Ratio of net investment income | |
to average net assets (%) | 0.766 |
Portfolio turnover (%) | 28 |
1 | Beginning of operations from 6-9-05 through 10-31-05. |
2 | Based on the average of the shares outstanding. |
3 | Assumes dividend reinvestment and does not reflect the effect of sales charges. |
4 | Total return would have been lower had certain expenses not been reduced during the period shown. |
5 | Not annualized. |
6 | Annualized. |
7 | Does not take into consideration expense reductions during the period shown. |
8 | Less than $500,000. |
See notes to financial statements. |
19
NOTES TO STATEMENTS |
Note A Accounting policies |
John Hancock Greater China Opportunities Fund (the “Fund”) is a non-diversified series of John Hancock Investment Trust III, an open-end management investment company registered under the Investment Company Act of 1940. The investment objective of the Fund is to achieve long-term 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 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.
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 close 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. 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 Securities and Exchange Commission, the Fund, along with other registered investment companies having a management contract with John Hancock Advisers, LLC (the “Adviser”), a wholly owned subsidiary of John Hancock Financial Services, Inc., 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.
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 recorded as of the date of purchase, sale or maturity. 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.
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 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.
21
The Fund had no open forward foreign currency exchange contracts on October 31, 2005.
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.
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. There were no distributions during the period ended October 31, 2005. 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.
As of October 31, 2005, the components of distributable earnings on a tax basis included $89,879 of undistributed ordinary income.
Such distributions and distributable earnings, 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 B 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 equivalent, at an annual rate of 1.00% of the Fund’s average daily net asset value. The Fund has a subadvisory agreement with MFC Global Investment Management (U.S.A.) Limited, an affiliate of John Hancock Financial Services, Inc. The Fund is not responsible for payment of the subadvisory fees.
The Adviser has agreed to limit the Fund’s expenses, excluding distribution and service fees and transfer agent fees, to 1.40% on an annual basis of the Fund’s average daily net asset value with respect to Class A, Class B and Class C shares and net operating expenses of Class A, Class B, Class C and Class I shares to 2.10%, 2.80%, 2.80% and 1.45% of each respective class’s average daily net asset value, at least until May 31, 2006. Accordingly, the expense reductions related to these total expense limitation amounted to $101,379 for the period ended October 31, 2005. The Adviser reserves the right to terminate these limitations in the future.
The Fund has Distribution Plans 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 Investment Company Act of 1940, to reimburse JH Funds for the services it provides as distributor
22
of shares of the Fund. Accordingly, the Fund makes monthly payments to JH Funds at an annual rate not to exceed 0.30% of Class A average daily net asset value and 1.00% of Class B and Class C average daily net asset value. 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.
Class A shares are assessed up-front sales charges. During the period ended October 31, 2005, JH Funds received net up-front sales charges of $215,162 with regard to sales of Class A shares. Of this amount, $32,281 was retained and used for printing prospectuses, advertising, sales literature and other purposes, $182,106 was paid as sales commissions to unrelated broker-dealers and $775 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 October 31, 2005, CDSCs received by JH Funds amounted to $102 for Class B shares and received no CDSCs with regard to 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 voluntarily reduce the Fund’s asset-based portion of the transfer agent fee if the total transfer agent fee exceeds the Lipper, Inc. median transfer agency fee for comparable mutual funds by 0.05% . There were no transfer agent fee reductions during the period ended October 31, 2005. Signature Services reserves the right to terminate this limitation at any time.
The Fund has an agreement with the Adviser to perform necessary tax, accounting and legal services for the Fund. The compensation for the period amounted to $1,010. The Fund also paid the Adviser the amount of $600 for certain publishing services, included in the printing fees. The Fund also paid the amount of $100 to JHLICo for certain compliance costs, included in the miscellaneous expenses.
The Adviser and other subsidiaries of JHLICo owned 470,000 Class A, 10,000 Class B, 10,000 Class C and 10,000 Class I shares of beneficial interest of the Fund on October 31, 2005.
Mr. James R. Boyle is an officer of certain affiliates of the Adviser, as well as affiliated Trustee of the Fund, and is compensated by the Adviser and/or its affiliates. The compensation of other
23
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 C Fund share transactions |
This listing illustrates the number of Fund shares sold and repurchased during the period, along with the corresponding dollar value.
Period ended 10-31-051 | ||
Shares | Amount | |
Class A shares | ||
Sold | 1,235,094 | $12,852,805 |
Repurchased | (19,657) | (208,796) |
Net increase | 1,215,437 | $12,644,009 |
Class B shares | ||
Sold | 140,806 | $1,500,503 |
Repurchased | (7,545) | (79,732) |
Net increase | 133,261 | $1,420,771 |
Class C shares | ||
Sold | 116,695 | $1,239,980 |
Repurchased | (212) | (2,370) |
Net increase | 116,483 | $1,237,610 |
Class I shares | ||
Sold | 10,000 | $100,000 |
Net increase | 10,000 | $100,000 |
Net increase | 1,475,181 | $15,402,390 |
1 | Beginning of operations from 6-9-05 through 10-31-05. |
Note D 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 October 31, 2005, aggregated $15,212,202 and $2,061,878, respectively.
The cost of investments owned on October 31, 2005, including short-term investments, for federal income tax purposes, was $13,204,243. Gross unrealized appreciation and depreciation of investments aggregated $357,026 and $744,004, respectively, resulting in net unrealized depreciation of $386,978. The difference between book basis and tax basis net unrealized depreciation of investments is attributable primarily to the tax deferral of losses on certain sales of securities and foreign currency.
24
Note E
Reclassification
of accounts
During the period ended October 31, 2005, the Fund reclassified amounts to reflect a decrease in accumulated net realized gain on investments of $3,507, an increase in accumulated net investment income of $10,351 and a decrease in capital paid-in of $6,844. This represents the amount necessary to report these balances on a tax basis, excluding certain temporary differences, as of October 31, 2005. Additional adjustments may be needed in subsequent reporting periods. These reclassifications, which have no impact on the net asset value of the Fund, are primarily attributable to certain differences in the computation of distributable income and capital gains under federal tax rules versus accounting principles generally accepted in the United States of America, book and tax differences in accounting for certain foreign currency adjustments. The calculation of net investment income per share in the Fund’s Financial Highlights excludes these adjustments.
25
AUDITORS’ REPORT |
Report of Independent Registered Public Accounting Firm |
To the Board of Trustees and Shareholders of John Hancock
Greater China Opportunities Fund,
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of John Hancock Greater China Opportunities Fund (the “Fund”) at October 31, 2005, the results of its operations, the changes in its net assets and the financial highlights for the period June 8, 2005 (commencement of operations) through October 31, 2005, indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit, which included con-firmation of securities at October 31, 2005 by correspondence with the custodian and brokers, provides a reasonable basis for our opinion.
PricewaterhouseCoopers LLP Boston, Massachusetts December 14, 2005 |
26
TAX INFORMATION |
Unaudited |
For federal income tax purposes, the following information is furnished with respect to the distributions of the Fund, if any, paid during its taxable year ended October 31, 2005.
The Fund hereby designates the maximum amount allowable of its net taxable income as qualified dividend income as provided in the Jobs and Growth Tax Relief Reconciliation Act of 2003. This amount will be reflected on Form 1099-DIV for the calendar year 2005.
Shareholders will be mailed a 2005 U.S. Treasury Department Form 1099-DIV in January 2006. This will reflect the total of all distributions that are taxable for calendar year 2005.
27
Board Consideration of Investment Advisory and Sub-Advisory Agreements: John Hancock Greater China Opportunities Fund |
Section 15(c) of the Investment Company Act of 1940 (the “1940 Act”) requires the Board of Trustees (the “Board”) of John Hancock Investment Trust III (the “Trust”), including a majority of the Trustees who have no direct or indirect interest in the investment advisory agreement and are not “interested persons” of the Trust, as defined in the 1940 Act (the “Independent Trustees”), initially to review and approve the investment advisory agreement (the “Advisory Agreement”) with John Hancock Advisers, LLC (the “Adviser”) for the John Hancock Greater China Opportunities Fund (the “Fund”) and the Subadvisory Agreement between the Adviser, MFC Global Investment Management (the “Subadviser”) and the Fund.
At meetings held on March 8, 2005, the Board, including the Independent Trustees, considered the factors and reached the conclusions described below relating to the selection of the Adviser and Subadviser and the approval of the Advisory Agreement and the Subadvisory Agreement.
During such meeting, the Board’s Contracts/Operations Committee and the Independent Trustees also met in executive sessions with their independent legal counsel. In evaluating the Advisory Agreement and the Subadvisory Agreement, 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 but not limited to advisory and other fees incurred by, and the expense ratios of, a group of comparable funds selected by the Adviser and the proposed fee and estimated expense ratio of the Fund. The Independent Trustees also consider information that was provided in connection with the Trustees annual review of the advisory agreement for other funds managed by the Adviser including (i) the Adviser’s financial results and condition, (ii) the background and experience of senior management and investment professionals, (iii) the nature, cost and character of advisory and non-investment management services provided by the Adviser and its affiliates to other series of the Trust and (iv) the Adviser’s record of compliance with applicable laws and regulations, with the Fund’s investment policies and restrictions, and with the Fund’s Code of Ethics and the structure and responsibilities of the Adviser’s compliance department.
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 to be provided to the Fund by the Adviser and its affiliates. The Board also reviewed the investment performance of similar accounts managed by the Subadviser compared to the performance of an index.
Based on the above factors, together with those references 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 suffi-cient to support approval of the Advisory Agreement and the Subadvisory Agreement.
28
Investment advisory and subadvisory fee rates and expenses |
The Board reviewed and considered the contractual investment advisory rate to be 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 average fee paid by a group of similar funds selected by the Adviser. The Board noted that the Advisory Agreement Rate was lower than average rate for these similar funds. The Board concluded that the Advisory Agreement Rate was reasonable in relation to the services to be provided.
The Board received and considered information regarding the Fund’s estimated total operating expense ratio and its various components, including contractual advisory fees, actual advisory fees, non-management fees, Rule 12b-1 and non-Rule 12b-1 service fees. The Board also considered comparisons of these expenses to the expenses information for the similar funds. The Board noted that the total operating expense ratio of the Fund was projected to be slightly lower than that of the peer group of funds. Based on the above-referenced considerations and other factors, the Board concluded that the Fund’s projected overall expense ratio supported the approval of the Advisory Agreement.
The Board also received information about the investment sub-advisory fee rate (the “Sub-Advisory Agreement Rate”) payable by the Adviser to the Sub-Adviser for investment sub-advisory services. The Board concluded that the Sub-Advisory Agreement Rate was fair and equitable, based on its consideration of the factors described above.
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 bene-fits 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 finan-cial products offered by the Adviser and its affiliates).
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.
Factors not considered relevant at this time |
In light of the fact that the Fund has not yet commenced normal operations, the Trustees noted that certain factors, such as investment performance, economics of scale and profitability, that will be relevant when the Trustee considers continuing the Advisory Agreement, are not germane to its initial approval.
Other factors and broader review |
The Board regularly reviews and assesses the quality of the services that the other funds managed by the Adviser receive throughout the year. In this regard, the Board reviews reports of the Adviser at least quarterly, which include, among other things, a detailed portfolio review, detailed fund performance reports
29
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 Advisory Agreement and the Subadvisory Agreement for the Fund was in the best interest of the Fund and its shareholders. Accordingly, the Board unanimously approved the Advisory Agreement and the Subadvisory Agreements.
30
TRUSTEES & OFFICERS |
This chart provides information about the Trustees and Officers who oversee your John Hancock fund. Officers elected by the Trustees manage the day-to-day operations of the Fund and execute policies formulated by the Trustees.
Independent Trustees | ||
Name, age | Number of | |
Position(s) held with Fund | Trustee | John Hancock |
Principal occupation(s) and other | of Fund | funds overseen |
directorships during past 5 years | since1 | by Trustee |
Ronald R. Dion, Born: 1946 | 2005 | 53 |
Independent Chairman (since 2005); Chairman and Chief Executive Officer, | ||
R.M. Bradley & Co., Inc.; Director, The New England Council and Massachusetts | ||
Roundtable; Trustee, North Shore Medical Center; Director, Boston Stock | ||
Exchange; Director, BJ’s Wholesale Club, Inc. and a corporator of the Eastern | ||
Bank; Trustee, Emmanuel College; Director, Boston Municipal Research Bureau; | ||
Member of the Advisory Board, Carroll Graduate School of Management at | ||
Boston College. | ||
James F. Carlin, Born: 1940 | 2005 | 53 |
Director and Treasurer, Alpha Analytical Inc. (analytical laboratory) (since 1985); | ||
Part Owner and Treasurer, Lawrence Carlin Insurance Agency, Inc. (since 1995); | ||
Part Owner and Vice President, Mone Lawrence Carlin Insurance Agency, Inc. | ||
(since 1996); Director and Treasurer, Rizzo Associates (engineering) (until 2000); | ||
Chairman and CEO, Carlin Consolidated, Inc. (management/investments) (since | ||
1987); Director and Partner, Proctor Carlin & Co., Inc. (until 1999); Trustee, | ||
Massachusetts Health and Education Tax Exempt Trust (since 1993); Director of | ||
the following: Uno Restaurant Corp. (until 2001), Arbella Mutual (insurance) | ||
(until 2000), HealthPlan Services, Inc. (until 1999), Flagship Healthcare, Inc. (until | ||
1999), Carlin Insurance Agency, Inc. (until 1999); Chairman, Massachusetts | ||
Board of Higher Education (until 1999). | ||
Richard P. Chapman, Jr.,2 Born: 1935 | 2005 | 53 |
President and Chief Executive Officer, Brookline Bancorp Inc. (lending) | ||
(since 1972); Director, Lumber Insurance Co. (insurance) (until 2000); | ||
Chairman and Director, Northeast Retirement Services, Inc. (retirement | ||
administration) (since 1998). | ||
William H. Cunningham, Born: 1944 | 2005 | 143 |
Former Chancellor, University of Texas System and former President of the | ||
University of Texas, Austin, Texas; Chairman and CEO, IBT Technologies | ||
(until 2001); Director of the following: The University of Texas Investment | ||
Management Company (until 2000), Hire.com (until 2004), STC Broadcasting, | ||
Inc. and Sunrise Television Corp. (electronic manufacturing) (until 2001), | ||
Symtx, Inc. (electronic manufacturing) (since 2001), Adorno/Rogers Technology, | ||
Inc. (until 2004), Pinnacle Foods Corporation (until 2003), rateGenius (Internet |
31
Independent Trustees (continued) | ||
Name, age | Number of | |
Position(s) held with Fund | Trustee | John Hancock |
Principal occupation(s) and other | of Fund | funds overseen |
directorships during past 5 years | since1 | by Trustee |
William H. Cunningham, Born: 1944 (continued) | 2005 | 143 |
service) (until 2003), Jefferson-Pilot Corporation (diversified life insurance | ||
company) (since 1985), New Century Equity Holdings (formerly Billing Concepts) | ||
(until 2001), eCertain (until 2001), ClassMap.com (until 2001), Agile Ventures | ||
(until 2001), LBJ Foundation (until 2000), Golfsmith International, Inc. | ||
(until 2000), Metamor Worldwide (until 2000), AskRed.com (until 2001), | ||
Southwest Airlines (since 2000) and Introgen (since 2000); Advisory Director, | ||
Q Investments (until 2003); Advisory Director, Chase Bank (formerly Texas | ||
Commerce Bank - Austin) (since 1988), LIN Television (since 2002), WilTel | ||
Communications (until 2003) and Hayes Lemmerz International, Inc. | ||
(diversified automotive parts supply company) (since 2003). | ||
Charles L. Ladner,2 Born: 1938 | 2005 | 143 |
Chairman and Trustee, Dunwoody Village, Inc. (retirement services) (until 2003); | ||
Senior Vice President and Chief Financial Officer, UGI Corporation (public utility | ||
holding company) (retired 1998); Vice President and Director for AmeriGas, Inc. | ||
(retired 1998); Director of AmeriGas Partners, L.P. (until 1997) (gas distribution); | ||
Director, EnergyNorth, Inc. (until 1995); Director, Parks and History Association | ||
(since 2001). | ||
John A. Moore,2 Born: 1939 | 2005 | 53 |
President and Chief Executive Officer, Institute for Evaluating Health Risks, | ||
(nonprofit institution) (until 2001); Chief Scientist, Sciences International (health | ||
research) (until 2003); Principal, Hollyhouse (consulting) (since 2000); Director, | ||
CIIT (nonprofit research) (since 2002). | ||
Patti McGill Peterson,2 Born: 1943 | 2005 | 53 |
Executive Director, Council for International Exchange of Scholars and Vice | ||
President, Institute of International Education (since 1998); Senior Fellow, Cornell | ||
Institute of Public Affairs, Cornell University (until 1998); Former President of | ||
Wells College and St. Lawrence University; Director, Niagara Mohawk Power | ||
Corporation (until 2003); Director, Ford Foundation, International Fellowships | ||
Program (since 2002); Director, Lois Roth Endowment (since 2002); Director, | ||
Council for International Educational Exchange (since 2003). | ||
Steven R. Pruchansky, Born: 1944 | 2005 | 53 |
Chairman and Chief Executive Officer, Greenscapes of Southwest Florida, Inc. | ||
(since 2000); Director and President, Greenscapes of Southwest Florida, Inc. | ||
(until 2000); Managing Director, JonJames, LLC (real estate) (since 2001); | ||
Director, First Signature Bank & Trust Company (until 1991); Director, Mast | ||
Realty Trust (until 1994); President, Maxwell Building Corp. (until 1991). |
32
Non-Independent Trustee3 | ||
Name, age | Number of | |
Position(s) held with Fund | Trustee | John Hancock |
Principal occupation(s) and other | of Fund | funds overseen |
directorships during past 5 years | since1 | by Trustee |
James R. Boyle, Born: 1959 | 2005 | 237 |
President, John Hancock Annuities; Executive Vice President, John Hancock | ||
Life Insurance Company (since June, 2004); Chairman and Director, John | ||
Hancock Advisers, LLC (the “Adviser”); John Hancock Funds, LLC (“John | ||
Hancock Funds”) and The Berkeley Financial Group, LLC (“The Berkeley | ||
Group”) (holding company) (since 2005); President U.S. Annuities; Senior | ||
Vice President, The Manufacturers Life Insurance Company (U.S.A.) (prior | ||
to 2004). | ||
Principal officers who are not Trustees | ||
Name, age | ||
Position(s) held with Fund | Officer | |
Principal occupation(s) and | of Fund | |
directorships during past 5 years | since | |
Keith F. Hartstein, Born: 1956 | 2005 | |
President and Chief Executive Officer | ||
Senior Vice President, Manulife Financial Corporation (since 2004); Director, | ||
President and Chief Executive Officer, the Adviser and The Berkeley Group; | ||
Director, President and Chief Executive Officer, John Hancock Funds; Director, | ||
President and Chief Executive Officer, Sovereign Asset Management LLC | ||
(“Sovereign”); Director, John Hancock Signature Services, Inc.; President, John | ||
Hancock Trust; Chairman and President, NM Capital Management, Inc. (NM | ||
Capital) (since 2005); Chairman, Investment Company Institute Sales Force | ||
Marketing Committee (since 2003); Executive Vice President, John Hancock | ||
Funds (until 2005). | ||
William H. King, Born: 1952 | 2005 | |
Vice President and Treasurer | ||
Vice President and Assistant Treasurer, the Adviser; Vice President and Treasurer | ||
of each of the John Hancock funds advised by the Adviser; Assistant Treasurer | ||
of each of the John Hancock funds (until 2001). | ||
Francis V. Knox, Jr., Born: 1947 | 2005 | |
Vice President and Chief Compliance Officer | ||
Vice President and Chief Compliance Officer for John Hancock Investment | ||
Company, John Hancock Life Insurance Company (U.S.A.), John Hancock Life | ||
Insurance Company and John Hancock Funds (since 2005); Fidelity Investments - | ||
Vice President and Assistant Treasurer, Fidelity Group of Funds (until 2004); | ||
Fidelity Investments - Vice President and Ethics & Compliance Officer (until 2001). | ||
John G. Vrysen, Born: 1955 | 2005 | |
Executive Vice President and Chief Financial Officer; Director, the Adviser, | ||
The Berkeley Group and John Hancock Funds. | ||
Executive Vice President and Chief Financial Officer, the Adviser, Sovereign, | ||
The Berkeley Group and John Hancock Funds (since 2005); Vice President and | ||
General Manager, Fixed Annuities, U.S. Wealth Management (until 2005); Vice | ||
President, Operations, Manulife Wood Logan (July 2000 thru September 2004). |
33
Notes to Trustees and Officers pages |
The business address for all Trustees and Officers is 601 Congress Street, Boston, Massachusetts 02210-2805.
The Statement of Additional Information of the Fund includes additional information about members of the Board of Trustees of the Fund and is available, without charge, upon request, by calling 1-800-225-5291.
1 Each Trustee serves until resignation, retirement age or until his or her successor is elected.
2 Member of Audit Committee. |
3 Non-independent Trustees hold positions with the Fund’s investment adviser, underwriter and certain other affiliates.
34
OUR FAMILY OF FUNDS |
Equity | Balanced Fund |
Classic Value Fund | |
Core Equity Fund | |
Focused Equity Fund | |
Growth Trends Fund | |
International Fund | |
Large Cap Equity Fund | |
Large Cap Growth Fund | |
Large Cap Select Fund | |
Mid Cap Growth Fund | |
Multi Cap Growth Fund | |
Small Cap Equity Fund | |
Small Cap Growth Fund | |
Sovereign Investors Fund | |
U.S. Global Leaders Growth Fund | |
Asset Allocation and | Allocation Growth + Value Portfolio |
Lifestyle Portfolios | Allocation Core Portfolio |
Lifestyle Aggressive Portfolio | |
Lifestyle Growth Portfolio | |
Lifestyle Balanced Portfolio | |
Lifestyle Moderate Portfolio | |
Lifestyle Conservative Portfolio | |
Sector | Biotechnology Fund |
Financial Industries Fund | |
Health Sciences Fund | |
Real Estate Fund | |
Regional Bank Fund | |
Technology Fund | |
Income | Bond Fund |
Government Income Fund | |
High Yield Fund | |
Investment Grade Bond Fund | |
Strategic Income Fund | |
Tax-Free Income | California Tax-Free Income Fund |
High Yield Municipal Bond Fund | |
Massachusetts Tax-Free Income Fund | |
New York Tax-Free Income Fund | |
Tax-Free Bond Fund | |
Money Market | Money Market Fund |
U.S. Government Cash Reserve |
For more complete information on any John Hancock Fund and a prospectus, which includes charges and expenses, call your financial professional, or John Hancock Funds at 1-800-225-5291. Please read the prospectus carefully before investing or sending money.
35
ELECTRONIC DELIVERY |
Now available from John Hancock Funds |
Instead of sending annual and semiannual reports and prospectuses through the U.S. mail, we’ll notify you by e-mail when these documents are available for online viewing.
How does electronic delivery benefit you? |
- No more waiting for the mail to arrive; you’ll receive an e-mail notification as soon as the document is ready for online viewing.
- Reduces the amount of paper mail you receive from John Hancock Funds.
- Reduces costs associated with printing and mailing.
Sign up for electronic delivery today at www.jhfunds.com/edelivery |
36
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 |
Investment adviser | Custodian | Legal counsel |
John Hancock Advisers, LLC | The Bank of New York | Wilmer Cutler Pickering |
601 Congress Street | One Wall Street | Hale and Dorr LLP |
Boston, MA 02210-2805 | New York, NY 10286 | 60 State Street |
Boston, MA 02109-1803 | ||
Subadviser | Transfer agent | |
MFC Global Investment | John Hancock Signature | Independent registered |
Management (U.S.A.) Limited | Services, Inc. | public accounting firm |
200 Bloor Street East | 1 John Hancock Way, | PricewaterhouseCoopers LLP |
Toronto, Ontario, Canada | Suite 1000 | 125 High Street |
M4W 1E5 | Boston, MA 02217-1000 | Boston, MA 02110 |
Principal distributor | ||
John Hancock Funds, LLC | ||
601 Congress Street | ||
Boston, MA 02210-2805 |
The Fund’s investment objective, 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.
How to contact us | ||
Internet | www.jhfunds.com | |
Regular mail: | Express mail: | |
John Hancock | John Hancock | |
Signature Services, Inc. | Signature Services, Inc. | |
1 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 |
24-hour automated information | 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 Securities and Exchange Commission’s Web site, www.sec.gov.
37
![](https://capedge.com/proxy/N-CSR/0000928816-05-001652/x40x1gc.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 Greater China Opportunities Fund. |
0800A 10/05 12/05 |
![](https://capedge.com/proxy/N-CSR/0000928816-05-001652/x1x1mc.jpg)
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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 |
Growth of $10,000 |
page 7 |
Your expenses |
page 8 |
Fund’s investments |
page 10 |
Financial statements |
page 13 |
Trustees & officers |
page 31 |
For more information |
page 37 |
To Our Shareholders,
I am pleased to be writing to you as the new President and Chief Executive Officer of John Hancock Funds, LLC, following the departure of James A. Shepherdson to pursue other opportunities. In addition, on July 25, 2005, your fund’s Board of Trustees appointed me to the roles of Trustee, President and Chief Executive Officer of your fund.
As a means of introduction, I have been involved in the mutual fund industry since 1985. I have been with John Hancock Funds for the last 15 years, most recently as executive vice president of retail sales and marketing and a member of the company’s executive and investment committees. In my former capacity, I was responsible for all aspects of the distribution and marketing of John Hancock Funds’ open-end and closed-end mutual funds. Outside of John Hancock, I have served as Chairman of the Investment Company Institute (ICI) Sales Force Marketing Committee since September of 2003.
It is an exciting time to be at John Hancock Funds, and I am grateful for the opportunity to lead and shape its further growth. With the acquisition of John Hancock by Manulife Financial Corporation in April 2004, we are receiving broad support toward the goal of providing our shareholders with excellent investment opportunities and a more complete lineup of choices for the discerning investor.
For one example, we have recently added five “Lifestyle Portfolio” funds-of-funds that blend multiple fund offerings from internal and external money managers to create a broadly diversified asset allocation portfolio. Look for more information about these exciting additions to the John Hancock family of funds in the near future.
Although there has been a change in executive-level management, rest assured that the one thing that never wavers is John Hancock Funds’ commitment to placing the needs of shareholders above all else. We are all dedicated to the task of working with you and your financial advisors to help you reach your long-term financial goals.
Sincerely,
![](https://capedge.com/proxy/N-CSR/0000928816-05-001652/x2x2mc.jpg)
Keith F. Hartstein, President and Chief Executive Officer |
This commentary reflects the CEO’s views as of October 31, 2005. They are subject to change at any time.
YOUR FUND AT A GLANCE |
The Fund seeks long-term capital appreciation by investing at least 80% of its assets in stocks of medium- capitalization companies (in the capitalization range of the Russell Midcap Growth Index) with above- average earnings growth. |
- Over the last twelve months
- U.S. stocks rallied, despite rising short-term interest rates, higher energy costs and weather-related disasters.
- Mid-cap stocks led the market’s climb, outdistancing both small- and large-cap stocks.
- The Fund especially benefited from investments in the consumer discretionary and energy sectors.
![](https://capedge.com/proxy/N-CSR/0000928816-05-001652/x3x1mc.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 | |
5.0% | Comverse Technology, Inc. |
4.3% | BJ Services Co. |
4.3% | Crown Holdings, Inc. |
4.3% | Rockwell Automation, Inc. |
4.3% | Monster Worldwide, Inc. |
4.0% | Redback Networks, Inc. |
3.9% | VeriSign, Inc. |
3.7% | Advance Auto Parts, Inc. |
3.6% | Urban Outfitters, Inc. |
3.5% | Sotheby’s Holdings, Inc. (Class A) |
As a percentage of net assets on October 31, 2005. |
1
BY THOMAS P. NORTON, CFA, PORTFOLIO MANAGER |
MANAGER’S REPORT |
JOHN HANCOCK Mid Cap Growth Fund |
The U.S. stock market remained resilient over the past year. Despite rising short-term interest rates, record energy prices and severe weather disruptions in the Gulf Coast and Europe, the economy posted decent growth and corporate earnings rose steadily. As the market rallied, the biggest gains came from the mid-cap sector, where stocks benefited from a combination of strong earnings growth and reasonable valuations. For the year ended October 31, 2005, the Russell Mid Cap Growth Index returned 15.91% compared to 8.72% for the larger-cap Standard & Poor’s 500 Index.
Performance and strategy highlights
John Hancock Mid Cap Growth Fund’s Class A, Class B, Class C and Class I shares returned 15.73%, 15.02%, 15.02% and 16.59%, respectively, at net asset value for the 12-month period ending October 31, 2005. The Fund beat the average mid-cap growth fund, which returned 14.10%, according to Lipper, Inc.1 Keep in mind that your net asset value return will be different from the Fund’s if you were not invested in the Fund for the entire period and did not reinvest all distributions. Long-term performance information can be found on pages six and seven.
“The U.S. stock market remained resilient over the past year.” |
The Fund remained diversified across industries, focusing on mid-size companies with market capitalizations between $3 billion and $10 billion that offered strong earnings-growth outlooks. During the period, we sold investments in lower-quality companies in favor of higher-quality names that offered better earnings growth, strong balance sheets and positive cash flow trends. We also trimmed investments in industrial companies that might get hurt by higher energy prices, as well as financial businesses that seemed vulnerable to rising interest rates. In their place, we boosted the Fund’s stakes in the technology and consumer discretionary sectors.
2
![](https://capedge.com/proxy/N-CSR/0000928816-05-001652/x5x1mc.jpg)
Consumer discretionary standouts
Some of the Fund’s biggest wins came from consumer discretionary stocks. We focused on companies where the consumer has the biggest impact, trimming areas such as media services. Among the best performers were high-end retailers, such as Coach, Inc. and Urban Outfitters, Inc., both of which continued to see strong sales growth. Coach, which sells handbags and other fashion accessories, also benefited from buying out its partner in a joint venture in Japan. Strong store expansion fueled Urban Outfitters, a specialty retailer that caters to women under age 40. Other top gainers included Panera Bread Co. and Jarden Corp. Panera Bread bene-fited from adding a catering business, introducing new food items and opening new stores. Jarden grew earnings through smart acquisitions, cost savings and skilled management. These four names more than offset disappointing returns from Sotheby’s Holdings, Inc., an art auction house that has yet to reap the full benefits of a recent restructuring.
Further boost from energy
Energy stocks were on fire this past year. Commodity prices reached record levels as global demand grew and Hurricane Katrina constrained supply by shutting down about one-third of U.S. refining capacity. The Fund benefited from having an above-average stake in the sector relative to its Russell benchmark index. In addition, investments in Toreador Resources Corp., Rowan Companies and BJ Services Co. generated strong returns. Toreador is an exploration and production (E&P) company that has recently had success finding new assets in the Black Sea (offshore from Turkey) and France. BJ Services and Rowan are energy service companies that supply the equipment that E&P companies need to drill and pump oil and natural gas. Both companies benefited from improved pricing. Elsewhere, Clean Harbors, an environmental clean-up company, boosted its market share, which helped trigger a huge run-up in the stock. We took profits and sold both Clean Harbors and Rowan Companies.
“Some of the Fund’s biggest wins came from consumer discretionary stocks.” |
3
Sector |
distribution2 |
Consumer |
discretionary -- 25% |
Information |
technology -- 17% |
Health care -- 17% |
Energy -- 15% |
Industrials -- 12% |
Materials -- 6% |
Financials -- 6% |
Disappointing stock picking in health care
The Fund’s health care returns were below average due to weak returns from two stocks. Medicines Co., a pharmaceutical company specializing in cardiac treatments, declined sharply as growth slowed for its key drug, Angiomax. Temporary concerns about the safety of another drug further pressured the stock. We held on to Medicines, believing the company will benefit from new applications for Angiomax. However, we sold Biogen Idec, a biotechnology leader that fell sharply when the company had to take a promising new multiple sclerosis drug off the market. Losses from these stocks muted the gains posted by other health care holdings, such as Protein Design Labs, Inc. The stock rebounded nicely after a recent acquisition. The company’s revenue outlook was also boosted by a new drug that treats ulcerative colitis and by royalty income from licensing agreements.
![](https://capedge.com/proxy/N-CSR/0000928816-05-001652/x6x1mc.jpg)
Additions to technology
Technology stock selection modestly hampered performance. Among the disappointments were Motive, a small software company, and Lexmark, a manufacturer of printers. Both declined sharply after missing earnings expectations. We sold our stakes in each, but bolstered the Fund’s overall technology stake. New purchases included VeriSign, Inc., an Internet software and services company, and Redback Networks, Inc., which makes networking equipment. We bought VeriSign on a price drop, believing it will benefit as cell phone companies switch to a subscription model for the ring-tones they offer subscribers. Redback Networks is on the cusp of a new product cycle that should drive revenues. We also kept a large stake in Comverse Technology, Inc., which provides the
4
![](https://capedge.com/proxy/N-CSR/0000928816-05-001652/x7x1mc.jpg)
software and networks for enhanced services such as voice mail and text messaging. The stock rallied nicely amid strong demand.
More cautious, but still optimistic outlook
At the end of the period, mid-cap stocks remained reasonably valued with strong earnings growth prospects. Uncertainties, however, could cloud the market’s progress. No one is sure, for instance, when the Federal Reserve will stop raising interest rates, how the market will react after the rate hikes are over and what impact a new Fed chairman will have. In addition, energy costs remain very high. If companies cannot pass added costs onto their customers, profits could contract. Geopolitical tensions and the possibility of a global bird flu pandemic are added concerns. In this type of environment, we plan to closely monitor economic indicators and corporate earnings, while downplaying sectors that we believe may be more vulnerable to higher interest rates and energy costs.
“At the end of the period, mid-cap stocks remained reasonably valued with strong earnings growth prospects.” |
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.
1 Figures from Lipper, 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 October 31, 2005.
5
A LOOK AT PERFORMANCE |
For the period ended October 31, 2005 |
Class A | Class B | Class C | Class I1 | |
Inception date | 11-1-93 | 11-1-93 | 6-1-98 | 3-1-02 |
Average annual returns with maximum sales charge (POP) | ||||
One year | 9.92% | 10.02% | 14.02% | 16.59% |
Five years | -9.73 | -9.78 | -9.42 | -- |
Ten years | 4.22 | 4.17 | -- | -- |
Since inception | -- | -- | -0.19 | 5.44 |
Cumulative total returns with maximum sales charge (POP) | ||||
One year | 9.92 | 10.02 | 14.02 | 16.59 |
Five years | -40.05 | -40.23 | -39.03 | -- |
Ten years | 51.19 | 50.47 | -- | -- |
Since inception | -- | -- | -1.41 | 21.45 |
Performance figures assume all distributions are reinvested. Returns with maximum sales charge 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 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. 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.
1For certain types of investors as described in the Fund’s Class I share prospectus.
6
GROWTH OF $10,000 |
This chart shows what happened to a hypothetical $10,000 investment in Class A shares for the period indicated. For comparison, we’ve shown the same investment in two separate indexes.
![](https://capedge.com/proxy/N-CSR/0000928816-05-001652/x9x1mc.jpg)
Class B1 | Class C1 | Class I2 | |
Period beginning | 10-31-95 | 6-1-98 | 3-1-02 |
Mid Cap Growth Fund | $15,047 | $9,859 | $12,145 |
Index 1 | 24,429 | 12,375 | 11,365 |
Index 2 | 23,792 | 14,690 | 13,389 |
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 October 31, 2005. 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 -- Index 1 -- is an unmanaged index that includes 500 widely traded common stocks.
Russell Midcap Growth Index -- Index 2 -- is an unmanaged index that contains those stocks from the Russell Midcap Index with a greater-than-average growth orientation.
It is not possible to invest directly in an index. Index figures do not reflect sales charges and would be lower if they did.
1 No contingent deferred sales charge applicable.
2 For certain types of investors as described in the Fund’s Class I share prospectus.
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 April 30, 2005, with the same investment held until October 31, 2005.
Account value | Expenses paid | |
$1,000.00 | Ending value | during period |
on 4-30-05 | on 10-31-05 | ended 10-31-051 |
Class A | $1,169.90 | $9.44 |
Class B | 1,165.60 | 13.21 |
Class C | 1,165.60 | 13.21 |
Class I | 1,174.20 | 5.65 |
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 October 31, 2005 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-CSR/0000928816-05-001652/x10x1mc.jpg)
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% annual return before expenses (which is not your fund’s actual return). It assumes an account value of $1,000.00 on April 30, 2005, with the same investment held until October 31, 2005. Look in any other fund shareholder report to find its hypothetical example and you will be able to compare these expenses.
Account value | Expenses paid | |
$1,000.00 | Ending value | during period |
on 4-30-05 | on 10-31-05 | ended 10-31-051 |
Class A | $1,016.50 | $8.77 |
Class B | 1,013.00 | 12.28 |
Class C | 1,013.00 | 12.28 |
Class I | 1,020.00 | 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 1.72%, 2.42%, 2.42% and 1.04% 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).
9
F I N A N C I A L S TAT E M E N T S |
FUND’S INVESTMENTS |
Securities owned by the Fund on October 31, 2005 |
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 98.34% | $130,851,856 | |||
(Cost $113,047,990) | ||||
Apparel Retail 6.41% | 8,526,380 | |||
Abercrombie & Fitch Co. (Class A) | 73,000 | 3,795,270 | ||
Urban Outfitters, Inc. (I) | 167,000 | 4,731,110 | ||
Apparel, Accessories & Luxury Goods 3.05% | 4,054,680 | |||
Coach, Inc. (I) | 126,000 | 4,054,680 | ||
Application Software 2.15% | 2,863,539 | |||
Cognos, Inc. (Canada) (I)(L) | 76,300 | 2,863,539 | ||
Asset Management & Custody Banks 2.81% | 3,733,887 | |||
Affiliated Managers Group, Inc. (I)(L) | 48,650 | 3,733,887 | ||
Auto Parts & Equipment 3.69% | 4,912,500 | |||
Advance Auto Parts, Inc. (I) | 131,000 | 4,912,500 | ||
Biotechnology 7.00% | 9,311,837 | |||
Cephalon, Inc. (I)(L) | 80,500 | 3,669,995 | ||
Protein Design Labs, Inc. (I)(L) | 152,100 | 4,261,842 | ||
Threshold Pharmaceuticals, Inc. (I) | 125,000 | 1,380,000 | ||
Communications Equipment 5.03% | 6,686,640 | |||
Comverse Technology, Inc. (I) | 266,400 | 6,686,640 | ||
Computer Storage & Peripherals 2.72% | 3,619,200 | |||
QLogic Corp. (I) | 120,000 | 3,619,200 | ||
Diversified Commercial Services 3.53% | 4,698,248 | |||
Sotheby’s Holdings, Inc. (Class A) (I)(L) | 301,750 | 4,698,248 | ||
Diversified Metals & Mining 2.19% | 2,915,374 | |||
Phelps Dodge Corp. | 24,200 | 2,915,374 | ||
Electrical Components & Equipment 4.26% | 5,665,790 | |||
Rockwell Automation, Inc. (L) | 106,600 | 5,665,790 |
See notes to financial statements. |
10
F I N A N C I A L S TAT E M E N T S |
Issuer | Shares | Value |
Electronic Manufacturing Services 1.99% | $2,650,680 | |
Jabil Circuit, Inc. (I) | 88,800 | 2,650,680 |
Employment Services 4.25% | 5,656,444 | |
Monster Worldwide, Inc. (I)(L) | 172,400 | 5,656,444 |
Health Care Supplies 3.35% | 4,451,560 | |
Gen-Probe, Inc. (I)(L) | 109,000 | 4,451,560 |
Hotels, Resorts & Cruise Lines 3.16% | 4,206,960 | |
Starwood Hotels & Resorts Worldwide, Inc. | 72,000 | 4,206,960 |
Internet Software & Services 3.93% | 5,232,864 | |
VeriSign, Inc. (I)(L) | 221,450 | 5,232,864 |
Leisure Products 3.47% | 4,617,403 | |
Jarden Corp. (I)(L) | 136,650 | 4,617,403 |
Managed Health Care 2.22% | 2,960,813 | |
Humana, Inc. (I) | 66,700 | 2,960,813 |
Metal & Glass Containers 4.28% | 5,693,220 | |
Crown Holdings, Inc. (I) | 351,000 | 5,693,220 |
Oil & Gas Drilling 2.43% | 3,236,890 | |
ENSCO International, Inc. | 71,000 | 3,236,890 |
Oil & Gas Equipment & Services 4.31% | 5,733,750 | |
BJ Services Co. (L) | 165,000 | 5,733,750 |
Oil & Gas Exploration & Production 8.30% | 11,047,175 | |
Chesapeake Energy Corp. | 115,000 | 3,691,500 |
Rosetta Resources, Inc. (I) | 204,150 | 3,776,775 |
Toreador Resources Corp. (I) | 130,000 | 3,578,900 |
Pharmaceuticals 4.77% | 6,343,098 | |
Medicines Co. (The) (I)(L) | 153,500 | 2,630,990 |
Rigel Pharmaceuticals, Inc. (I) | 165,350 | 3,712,108 |
Restaurants 2.00% | 2,663,550 | |
Panera Bread Co. (Class A) (I)(L) | 45,000 | 2,663,550 |
Semiconductor Equipment 3.09% | 4,114,374 | |
Broadcom Corp. (Class A) (I) | 96,900 | 4,114,374 |
Systems Software 3.95% | 5,255,000 | |
Redback Networks, Inc. (I)(L) | 500,000 | 5,255,000 |
See notes to financial statements. |
11
F I N A N C I A L S TAT E M E N T S | ||||
Interest | Par value | |||
Issuer, description, maturity date | rate | (000) | Value | |
Short-term investments 34.53% | $45,943,971 | |||
(Cost $45,943,971) | ||||
Joint Repurchase Agreement 1.91% | 2,545,000 | |||
Investment in a joint repurchase agreement transaction | ||||
with Barclays Capital, Inc. -- Dated 10-31-05 | ||||
due 11-1-05 (secured by U.S. Treasury Inflation | ||||
Indexed Notes 0.875% due 4-15-10 and 1.875% | ||||
due 7-15-13) | 3.94% | $2,545 | 2,545,000 | |
Shares | ||||
Cash Equivalents 32.62% | 43,398,971 | |||
AIM Cash Investment Trust (T) | 43,398,971 | 43,398,971 | ||
Total investments 132.87% | $176,795,827 | |||
Other assets and liabilities, net (32.87%) | ($43,741,003) | |||
Total net assets 100.00% | $133,054,824 |
(I) | Non-income-producing security. |
(L) | All or a portion of this security is on loan as of October 31, 2005. |
(T) | Represents investment of securities lending collateral. |
Parenthetical disclosure of a foreign country in the security description represents country of a foreign issuer. 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. |
12
F I N A N C I A L S TAT E M E N T S |
ASSETS AND LIABILITIES |
October 31, 2005 |
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 $158,991,961) | |
including $42,548,011 of securities loaned | $176,795,827 |
Cash | 412 |
Receivable for shares sold | 36,237 |
Interest receivable | 279 |
Other assets | 19,694 |
Total assets | 176,852,449 |
Liabilities | |
Payable for shares repurchased | 148,397 |
Payable upon receipt of securities loaned | 43,398,971 |
Payable to affiliates | |
Management fees | 90,337 |
Distribution and service fees | 7,995 |
Other | 62,425 |
Other payables and accrued expenses | 89,500 |
Total liabilities | 43,797,625 |
Net assets | |
Capital paid-in | 194,026,711 |
Accumulated net realized loss on investments | (78,754,155) |
Net unrealized appreciation of investments | 17,803,866 |
Accumulated net investment loss | (21,598) |
Net assets | $133,054,824 |
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 ($101,374,701 ÷ 10,517,866 shares) | $9.64 |
Class B ($25,901,434 ÷ 2,968,408 shares) | $8.73 |
Class C ($3,204,520 ÷ 367,150 shares) | $8.73 |
Class I ($2,574,169 ÷ 259,766 shares) | $9.91 |
Maximum offering price per share | |
Class A1 ($9.64 ÷ 95%) | $10.15 |
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. |
13
F I N A N C I A L S TAT E M E N T S |
OPERATIONS
For the year ended October 31, 2005 |
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 | $362,178 |
Securities lending | 88,061 |
Interest | 82,459 |
Total investment income | 532,698 |
Expenses | |
Investment management fees | 1,086,454 |
Class A distribution and service fees | 302,502 |
Class B distribution and service fees | 293,608 |
Class C distribution and service fees | 31,290 |
Class A, B and C transfer agent fees | 654,269 |
Class I transfer agent fees | 1,203 |
Printing | 76,081 |
Registration and filing fees | 54,988 |
Custodian fees | 34,167 |
Professional fees | 33,827 |
Accounting and legal services fees | 31,938 |
Miscellaneous | 14,745 |
Trustees’ fees | 6,542 |
Securities lending fees | 4,103 |
Interest | 3,221 |
Total expenses | 2,628,938 |
Less expense reductions | (61,403) |
Net expenses | 2,567,535 |
Net investment loss | (2,034,837) |
Realized and unrealized gain | |
Net realized gain on investments | 14,025,629 |
Change in net unrealized appreciation (depreciation) | |
of investments | 7,653,313 |
Net realized and unrealized gain | 21,678,942 |
Increase in net assets from operations | $19,644,105 |
See notes to financial statements. |
14
F I N A N C I A L S TAT E M E N T S |
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 | Year | |
ended | ended | |
10-31-04 | 10-31-05 | |
Increase (decrease) in net assets | ||
From operations | ||
Net investment loss | ($2,502,591) | ($2,034,837) |
Net realized gain | 16,496,734 | 14,025,629 |
Change in net unrealized | ||
appreciation (depreciation) | (16,196,116) | 7,653,313 |
Increase (decrease) in net assets | ||
resulting from operations | (2,201,973) | 19,644,105 |
From Fund share transactions | (21,349,161) | (23,917,624) |
Net assets | ||
Beginning of period | 160,879,477 | 137,328,343 |
End of period1 | $137,328,343 | $133,054,824 |
1 Includes accumulated net investment loss of $21,361 and $21,598, respectively. |
See notes to financial statements. |
15
F I N A N C I A L H I G H L I G H T S |
FINANCIAL HIGHLIGHTS |
CLASS A SHARES The Financial Highlights show how the Fund’s net asset value for a share has changed since the end of the previous period. |
Period ended | 10-31-01 | 10-31-02 | 10-31-03 | 10-31-04 | 10-31-05 |
Per share operating performance | |||||
Net asset value, | |||||
beginning of period | $16.03 | $7.66 | $6.47 | $8.43 | $8.33 |
Net investment loss1 | (0.12) | (0.11) | (0.11) | (0.12) | (0.12) |
Net realized and unrealized | |||||
gain (loss) on investments | (7.48) | (1.08) | 2.07 | 0.02 | 1.43 |
Total from | |||||
investment operations | (7.60) | (1.19) | 1.96 | (0.10) | 1.31 |
Less distributions | |||||
From net realized gain | (0.77) | -- | -- | -- | -- |
Net asset value, | |||||
end of period | $7.66 | $6.47 | $8.43 | $8.33 | $9.64 |
Total return2 (%) | (49.87) | (15.54) | 30.29 | (1.19)3 | 15.733 |
Ratios and supplemental data | |||||
Net assets, end of period | |||||
(in millions) | $85 | $85 | $107 | $98 | $101 |
Ratio of expenses | |||||
to average net assets (%) | 1.63 | 1.89 | 1.98 | 1.75 | 1.74 |
Ratio of adjusted expenses | |||||
to average net assets4 (%) | -- | -- | -- | 1.79 | 1.79 |
Ratio of net investment loss | |||||
to average net assets (%) | (1.13) | (1.52) | (1.62) | (1.44) | (1.35) |
Portfolio turnover (%) | 211 | 2675 | 183 | 75 | 71 |
See notes to financial statements. |
16
F I N A N C I A L H I G H L I G H T S |
CLASS B SHARES |
Period ended | 10-31-01 | 10-31-02 | 10-31-03 | 10-31-04 | 10-31-05 |
Per share operating performance | |||||
Net asset value, | |||||
beginning of period | $15.08 | $7.13 | $5.98 | $7.74 | $7.59 |
Net investment loss1 | (0.18) | (0.16) | (0.15) | (0.17) | (0.17) |
Net realized and unrealized | |||||
gain (loss) on investments | (7.00) | (0.99) | 1.91 | 0.02 | 1.31 |
Total from | |||||
investment operations | (7.18) | (1.15) | 1.76 | (0.15) | 1.14 |
Less distributions | |||||
From net realized gain | (0.77) | -- | -- | -- | -- |
Net asset value, | |||||
end of period | $7.13 | $5.98 | $7.74 | $7.59 | $8.73 |
Total return2 (%) | (50.24) | (16.13) | 29.43 | (1.94)3 | 15.023 |
Ratios and supplemental data | |||||
Net assets, end of period | |||||
(in millions) | $101 | $46 | $48 | $34 | $26 |
Ratio of expenses | |||||
to average net assets (%) | 2.33 | 2.56 | 2.67 | 2.45 | 2.44 |
Ratio of adjusted expenses | |||||
to average net assets4 (%) | -- | -- | -- | 2.49 | 2.49 |
Ratio of net investment loss | |||||
to average net assets (%) | (1.83) | (2.20) | (2.31) | (2.14) | (2.03) |
Portfolio turnover (%) | 211 | 2675 | 183 | 75 | 71 |
See notes to financial statements. |
17
F I N A N C I A L H I G H L I G H T S |
CLASS C SHARES |
Period ended | 10-31-01 | 10-31-02 | 10-31-03 | 10-31-04 | 10-31-05 |
Per share operating performance | |||||
Net asset value, | |||||
beginning of period | $15.07 | $7.13 | $5.99 | $7.74 | $7.59 |
Net investment loss1 | (0.18) | (0.16) | (0.15) | (0.17) | (0.17) |
Net realized and unrealized | |||||
gain (loss) on investments | (6.99) | (0.98) | 1.90 | 0.02 | 1.31 |
Total from | |||||
investment operations | (7.17) | (1.14) | 1.75 | (0.15) | 1.14 |
Less distributions | |||||
From net realized gain | (0.77) | -- | -- | -- | -- |
Net asset value, | |||||
end of period | $7.13 | $5.99 | $7.74 | $7.59 | $8.73 |
Total return2 (%) | (50.21) | (15.99) | 29.22 | (1.94)3 | 15.023 |
Ratios and supplemental data | |||||
Net assets, end of period | |||||
(in millions) | $3 | $2 | $3 | $3 | $3 |
Ratio of expenses | |||||
to average net assets (%) | 2.33 | 2.58 | 2.68 | 2.45 | 2.44 |
Ratio of adjusted expenses | |||||
to average net assets4 (%) | -- | -- | -- | 2.49 | 2.49 |
Ratio of net investment loss | |||||
to average net assets (%) | (1.83) | (2.21) | (2.32) | (2.14) | (2.05) |
Portfolio turnover (%) | 211 | 2675 | 183 | 75 | 71 |
See notes to financial statements. |
18
F I N A N C I A L H I G H L I G H T S |
CLASS I SHARES |
Period ended | 10-31-026 | 10-31-03 | 10-31-04 | 10-31-05 |
Per share operating performance | ||||
Net asset value, | ||||
beginning of period | $8.16 | $6.51 | $8.54 | $8.50 |
Net investment loss1 | (0.06) | (0.06) | (0.06) | (0.06) |
Net realized and unrealized | ||||
gain (loss) on investments | (1.59) | 2.09 | 0.02 | 1.47 |
Total from | ||||
investment operations | (1.65) | 2.03 | (0.04) | 1.41 |
Net asset value, | ||||
end of period | $6.51 | $8.54 | $8.50 | $9.91 |
Total return2 (%) | (20.22)7 | 31.18 | (0.47) | 16.59 |
Ratios and supplemental data | ||||
Net assets, end of period | ||||
(in millions) | $3 | $3 | $3 | $3 |
Ratio of expenses | ||||
to average net assets (%) | 1.468 | 1.22 | 1.02 | 1.04 |
Ratio of net investment loss | ||||
to average net assets (%) | (1.00)8 | (0.85) | (0.71) | (0.65) |
Portfolio turnover (%) | 2675 | 183 | 75 | 71 |
1 Based on the average of the shares outstanding.
2 Assumes dividend reinvestment and does not reflect the effect of sales charges.
3 Total returns would have been lower had certain expenses not been reduced during the periods shown.
4 Does not take into consideration expense reductions during the periods shown.
5 Excludes merger activity.
6 Class I shares began operations on 3-1-02.
7 Not annualized.
8 Annualized.
See notes to financial statements. |
19
NOTES TO STATEMENTS |
Note A Accounting policies |
John Hancock Mid Cap Growth Fund (the “Fund”) is a diversified series of John Hancock Investment Trust III, an open-end management investment company registered under the Investment Company Act of 1940. The investment objective of the Fund is to achieve long-term 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 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.
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 close 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 AIM Cash Investment Trust 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 Securities and Exchange Commission, the Fund, along with other registered investment companies having a management contract with John Hancock Advisers, LLC (the “Adviser”), a wholly owned subsidiary of John Hancock Financial Services, Inc., 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.
20
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.
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 recorded as of the date of purchase, sale or maturity. 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 syndicated line of credit agreement with various banks. This agreement enables the Fund to participate, with other funds managed by the Adviser, in an unsecured line of credit with banks, which permits borrowings of up to $250 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 year ended October 31, 2005.
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
21
securities fail financially. At October 31, 2005, the Fund loaned securities having a market value of $42,548,011 collateralized by cash in the amount of $43,398,971. The cash collateral was invested in a short-term instrument. Securities lending expenses are paid by the Fund to the Adviser.
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 $78,754,155 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, 2008 --$616,263, October 31, 2009 -- $53,131,446 and October 31, 2010 -- $25,006,446. Availability of a certain amount of the loss carryforward, which was acquired on June 7, 2002 in a merger, may be limited in a given year.
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. There were no distributions during the years ended December 31, 2004 and December 31, 2005. 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.
As of October 31, 2005, there were no distributable earnings on a tax basis.
Such distributions and distributable earnings, 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 B
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) 0.80% of the first $500,000,000 of the Fund’s average daily net asset value, (b) 0.75% of the next $500,000,000 and (c) 0.70% of the Fund’s average daily net asset value in excess of $1,000,000,000.
The Fund has Distribution Plans 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 Investment Company
22
Act of 1940, 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% of Class A average daily net asset value and 1.00% of Class B and Class C average daily net asset value. 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.
Class A shares are assessed up-front sales charges. During the year ended October 31, 2005, JH Funds received net up-front sales charges of $61,951 with regard to sales of Class A shares. Of this amount, $7,459 was retained and used for printing prospectuses, advertising, sales literature and other purposes, $40,631 was paid as sales commissions to unrelated broker-dealers and $13,861 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 year ended October 31, 2005, CDSCs received by JH Funds amounted to $72,471 for Class B shares and $439 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 voluntarily reduce the Fund’s asset-based portion of the transfer agent fee if the total transfer agent fee exceeds the Lipper, Inc. median transfer agency fee for comparable mutual funds by 0.05% . Accordingly, the transfer agent expense for Class A, Class B and Class C shares was reduced by $61,403 for the year ended October 31, 2005. Signature Services reserves the right to terminate this limitation at any time.
The Fund has an agreement with the Adviser to perform necessary tax, accounting and legal services for the Fund. The compensation for the year amounted to $31,938. The Fund also paid the Adviser the amount of $407 for certain publishing services, included in the printing fees. The Fund also paid the amount of $2,703 to JHLICo for certain compliance costs, included in the miscellaneous expenses.
Mr. James R. Boyle is an officer of certain affiliates of the Adviser, as well as affiliated Trustee of the Fund, and is compensated by the Adviser and/or its affiliates. The compensation of other unaffiliated Trustees is borne by the Fund. The unaffiliated Trustees may elect to defer,
23
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 C Fund share transactions |
Year ended 10-31-04 | Year ended 10-31-05 | |||
Shares | Amount | Shares | Amount | |
Class A shares | ||||
Sold | 1,967,512 | $16,799,745 | 1,409,247 | $12,651,836 |
Repurchased | (2,857,998) | (24,115,884) | (2,642,146) | (23,854,729) |
Net decrease | (890,486) | ($7,316,139) | (1,232,899) | ($11,202,893) |
Class B shares | ||||
Sold | 902,062 | $6,933,222 | 360,358 | $2,949,863 |
Repurchased | (2,635,622) | (20,261,037) | (1,864,803) | (15,142,628) |
Net decrease | (1,733,560) | ($13,327,815) | (1,504,445) | ($12,192,765) |
Class C shares | ||||
Sold | 120,684 | $934,329 | 71,585 | $588,127 |
Repurchased | (144,186) | (1,101,394) | (97,294) | (795,276) |
Net decrease | (23,502) | ($167,065) | (25,709) | ($207,149) |
Class I shares | ||||
Sold | 57,520 | $502,107 | 34,207 | $316,376 |
Repurchased | (120,524) | (1,040,249) | (69,584) | (631,193) |
Net decrease | (63,004) | ($538,142) | (35,377) | ($314,817) |
Net decrease | (2,710,552) | ($21,349,161) | (2,798,430) | ($23,917,624) |
Note D Investment transactions |
The cost of investments owned on October 31, 2005, including short-term investments, for federal income tax purposes, was $158,991,961. Gross unrealized appreciation and depreciation of investments aggregated $22,512,900 and $4,709,034, respectively, resulting in net unrealized appreciation of $17,803,866.
Note E Reclassification of accounts |
24
$2,034,739. This represents the amounts necessary to report these balances on a tax basis, excluding certain temporary differences, as of October 31, 2005. Additional adjustments may be needed in subsequent reporting periods. These reclassifications, which have no impact on the net asset value of the Fund, are primarily attributable to certain differences in the computation of distributable income and capital gains under federal tax rules versus accounting principles generally accepted in the United States of America, book and tax differences in accounting for deferred compensation and net operating loss. The calculation of net investment loss per share in the Fund’s Financial Highlights excludes these adjustments.
Shareholder meeting (unaudited)
On December 1, 2004, a Special Meeting of shareholders of the Fund was held to elect nine Trustees effective January 1, 2005.
Proxies covering 11,700,644 shares of beneficial interest were voted at the meeting.
The shareholders elected the following Trustees to serve until their respective successors are duly elected and qualified, with the votes tabulated as follows:
W I T H H E L D | ||
F O R | A U T H O R I T Y | |
James F. Carlin | 11,442,183 | 258,461 |
Richard P. Chapman, Jr. | 11,459,078 | 241,566 |
William H. Cunningham | 11,441,776 | 258,868 |
Ronald R. Dion | 11,451,594 | 249,050 |
Charles L. Ladner | 11,460,509 | 240,135 |
Dr. John A. Moore | 11,461,587 | 239,057 |
Patti McGill Peterson | 11,435,141 | 265,503 |
Steven R. Pruchansky | 11,461,625 | 239,019 |
James A. Shepherdson* | 11,459,267 | 241,377 |
* Mr. James A. Shepherdson resigned effective July 15, 2005. |
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AUDITORS’ REPORT |
Report of Independent Registered Public Accounting Firm |
To the Board of Trustees and Shareholders of John Hancock Mid Cap Growth Fund, |
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of John Hancock Mid Cap Growth Fund (the “Fund”) at October 31, 2005, the results of its operations, the changes in its net assets and the financial highlights for the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at October 31, 2005 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP Boston, Massachusetts December 14, 2005 |
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TAX INFORMATION |
Unaudited
For federal income tax purposes, the following information is furnished with respect to the distributions of the Fund, if any, paid during its taxable year ended October 31, 2005.
The Fund hereby designates the maximum amount allowable of its net taxable income as qualified dividend income as provided in the Jobs and Growth Tax Relief Reconciliation Act of 2003. This amount will be reflected on Form 1099-DIV for the calendar year 2005.
Shareholders will be mailed a 2005 U.S. Treasury Department Form 1099-DIV in January 2006. This will reflect the total of all distributions that are taxable for calendar year 2005.
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Board Consideration of and Continuation of Investment Advisory Agreement: John Hancock Mid Cap Growth Fund |
Section 15(c) of the Investment Company Act of 1940 (the “1940 Act”) requires the Board of Trustees (the “Board”) of John Hancock Investment Trust III (the “Trust”), including a majority of the Trustees who have no direct or indirect interest in the investment advisory agreement and are not “interested persons” of the Trust, as defined in the 1940 Act (the “Independent Trustees”), annually to review and consider the continuation of the investment advisory agreement (the “Advisory Agreement”) with John Hancock Advisers, LLC (the “Adviser”) for the John Hancock Mid Cap Growth Fund (the “Fund”).
At meetings held on May 19-20 and June 6-7, 2005, the Board, including the Independent Trustees, considered the factors and reached the conclusions described below relating to the selection of the Adviser and the continuation of the Advisory 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 Agreement, 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 but not limited to the following: (i) the investment performance of the Fund and a broader universe of relevant funds (the “Universe”) selected by Lipper Inc. (“Lipper”), an independent provider of investment company data, for a range of periods, (ii) advisory and other fees incurred by, and the expense ratios of, the Fund and a peer group of comparable funds selected by Lipper (the “Peer Group”), (iii) the advisory fees of comparable portfolios of other clients of the Adviser, (iv) the Adviser’s financial results and condition, including its and certain of its affiliates’ profitability from services performed for the Fund, (v) breakpoints in the Fund’s and the Peer Group’s fees and a study undertaken at the direction of the Independent Trustees as to the allocation of the bene-fits of economies of scale between the Fund and the Adviser, (vi) the Adviser’s record of compliance with applicable laws and regulations, with the Fund’s investment policies and restrictions, and with the Fund’s Code of Ethics and the structure and responsibilities of the Adviser’s compliance department, (vii) the background and experience of senior management and investment professionals, and (viii) the nature, cost and character of advisory and non-investment management services provided by the Adviser and its affiliates.
Nature, extent and quality of services |
The Board considered the ability of the Adviser, based on its 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. 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 were sufficient to support renewal of the Advisory Agreement.
28
Fund performance
The Board considered the performance results for the Fund over various time periods. The Board also considered these results in comparison to the performance of the Universe, as well as the Fund’s benchmark indexes. Lipper determined the Universe for the Fund. The Board reviewed with a representative of Lipper the methodology used by Lipper to select the funds in the Universe and the Peer Group.
The Board noted that the performance of the Fund was below the median and average performance of its Universe and the performance of its benchmark indexes, the Lipper Mid-Cap Growth Funds Index and the Russell Midcap Growth Index, for the time periods under review. The Adviser discussed with the Board factors that contributed to the Fund’s under-performance and described measures that may be taken in the future with the objective of improving performance. The Board intends to continue to monitor the Fund’s performance trends to assess whether other remedial changes are warranted.
Investment advisory fee rates and expenses
The Board reviewed and considered the contractual investment advisory fee rate payable by the Fund to the Adviser for investment advisory services (the “Advisory Agreement Rate”). The Board received and considered information comparing the Advisory Agreement Rate with the advisory fees for the Peer Group. The Board noted that the Advisory Agreement Rate was lower than the median rate of the Peer Group. The Board concluded that the Advisory Agreement Rate was reasonable in relation to the services provided.
The Board received and considered information regarding the Fund’s total operating expense ratio and its various components, including contractual advisory fees, actual advisory fees, non-management fees, Rule 12b-1 and non-Rule 12b-1 service fees, transfer agent fees and custodian fees, including and excluding Rule 12b-1 and non-Rule 12b-1 service fees. The Board also considered comparisons of these expenses to the expense information for the Peer Group and the Universe. The Board noted that the total operating expense ratio of the Fund was higher than the Peer Group’s and Universe’s median total operating expense ratio. It also noted that the most significant contributor to such difference was the Fund’s transfer agency expense, which the transfer agent has taken steps to reduce.
The Adviser also discussed the Lipper data and rankings, and other relevant information, for the Fund. Based on the above-referenced considerations and other factors, the Board concluded that the plans to reduce the Fund’s overall fees and expenses and plans for improving the Fund’s performance supported the re-approval of the Advisory Agreements.
Profitability
The Board received and considered a detailed profitability analysis of the Adviser based on the Advisory Agreement, as well as on other relationships between the Fund and the Adviser and its affili-ates. 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
29
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.
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).
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 as part of the annual re-approval process under Section 15(c) of the 1940 Act. The Board also regularly reviews and assesses the quality of the services that the Fund receives throughout the year. In this regard, the Board reviews reports of the Adviser at least quarterly, which include, among other things, a detailed portfolio review, detailed 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 Agreement for the Fund was in the best interest of the Fund and its shareholders. Accordingly, the Board unanimously approved the continuation of the Advisory Agreement.
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TRUSTEES & OFFICERS |
This chart provides information about the Trustees and Officers who oversee your John Hancock fund. Officers elected by the Trustees manage the day-to-day operations of the Fund and execute policies formulated by the Trustees.
Independent Trustees | ||
Name, age | Number of | |
Position(s) held with Fund | Trustee | John Hancock |
Principal occupation(s) and other | of Fund | funds overseen |
directorships during past 5 years | since1 | by Trustee |
Ronald R. Dion, Born: 1946 | 2005 | 53 |
Independent Chairman (since 2005); Chairman and Chief Executive Officer, | ||
R.M. Bradley & Co., Inc.; Director, The New England Council and Massachusetts | ||
Roundtable; Trustee, North Shore Medical Center; Director, Boston Stock | ||
Exchange; Director, BJ’s Wholesale Club, Inc. and a corporator of the Eastern | ||
Bank; Trustee, Emmanuel College; Director, Boston Municipal Research Bureau; | ||
Member of the Advisory Board, Carroll Graduate School of Management at | ||
Boston College. | ||
James F. Carlin, Born: 1940 | 2005 | 53 |
Director and Treasurer, Alpha Analytical Inc. (analytical laboratory) (since 1985); | ||
Part Owner and Treasurer, Lawrence Carlin Insurance Agency, Inc. (since 1995); | ||
Part Owner and Vice President, Mone Lawrence Carlin Insurance Agency, Inc. | ||
(since 1996); Director and Treasurer, Rizzo Associates (engineering) (until 2000); | ||
Chairman and CEO, Carlin Consolidated, Inc. (management/investments) (since | ||
1987); Director and Partner, Proctor Carlin & Co., Inc. (until 1999); Trustee, | ||
Massachusetts Health and Education Tax Exempt Trust (since 1993); Director of | ||
the following: Uno Restaurant Corp. (until 2001), Arbella Mutual (insurance) | ||
(until 2000), HealthPlan Services, Inc. (until 1999), Flagship Healthcare, Inc. (until | ||
1999), Carlin Insurance Agency, Inc. (until 1999); Chairman, Massachusetts | ||
Board of Higher Education (until 1999). | ||
Richard P. Chapman, Jr.,2 Born: 1935 | 1996 | 53 |
President and Chief Executive Officer, Brookline Bancorp Inc. (lending) | ||
(since 1972); Director, Lumber Insurance Co. (insurance) (until 2000); | ||
Chairman and Director, Northeast Retirement Services, Inc. (retirement | ||
administration) (since 1998). | ||
William H. Cunningham, Born: 1944 | 2005 | 143 |
Former Chancellor, University of Texas System and former President of the | ||
University of Texas, Austin, Texas; Chairman and CEO, IBT Technologies | ||
(until 2001); Director of the following: The University of Texas Investment | ||
Management Company (until 2000), Hire.com (until 2004), STC Broadcasting, | ||
Inc. and Sunrise Television Corp. (electronic manufacturing) (until 2001), | ||
Symtx, Inc. (electronic manufacturing) (since 2001), Adorno/Rogers Technology, | ||
Inc. (until 2004), Pinnacle Foods Corporation (until 2003), rateGenius (Internet |
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Independent Trustees (continued) | ||
Name, age | Number of | |
Position(s) held with Fund | Trustee | John Hancock |
Principal occupation(s) and other | of Fund | funds overseen |
directorships during past 5 years | since1 | by Trustee |
William H. Cunningham, Born: 1944 (continued) | 2005 | 143 |
service) (until 2003), Jefferson-Pilot Corporation (diversified life insurance | ||
company) (since 1985), New Century Equity Holdings (formerly Billing Concepts) | ||
(until 2001), eCertain (until 2001), ClassMap.com (until 2001), Agile Ventures | ||
(until 2001), LBJ Foundation (until 2000), Golfsmith International, Inc. | ||
(until 2000), Metamor Worldwide (until 2000), AskRed.com (until 2001), | ||
Southwest Airlines (since 2000) and Introgen (since 2000); Advisory Director, | ||
Q Investments (until 2003); Advisory Director, Chase Bank (formerly Texas | ||
Commerce Bank - Austin) (since 1988), LIN Television (since 2002), WilTel | ||
Communications (until 2003) and Hayes Lemmerz International, Inc. | ||
(diversified automotive parts supply company) (since 2003). | ||
Charles L. Ladner,2 Born: 1938 | 2004 | 143 |
Chairman and Trustee, Dunwoody Village, Inc. (retirement services) (until 2003); | ||
Senior Vice President and Chief Financial Officer, UGI Corporation (public utility | ||
holding company) (retired 1998); Vice President and Director for AmeriGas, Inc. | ||
(retired 1998); Director of AmeriGas Partners, L.P. (until 1997) (gas distribution); | ||
Director, EnergyNorth, Inc. (until 1995); Director, Parks and History Association | ||
(since 2001). | ||
John A. Moore,2 Born: 1939 | 1993 | 53 |
President and Chief Executive Officer, Institute for Evaluating Health Risks, | ||
(nonprofit institution) (until 2001); Chief Scientist, Sciences International (health | ||
research) (until 2003); Principal, Hollyhouse (consulting) (since 2000); Director, | ||
CIIT (nonprofit research) (since 2002). | ||
Patti McGill Peterson,2 Born: 1943 | 1993 | 53 |
Executive Director, Council for International Exchange of Scholars and Vice | ||
President, Institute of International Education (since 1998); Senior Fellow, Cornell | ||
Institute of Public Affairs, Cornell University (until 1998); Former President of | ||
Wells College and St. Lawrence University; Director, Niagara Mohawk Power | ||
Corporation (until 2003); Director, Ford Foundation, International Fellowships | ||
Program (since 2002); Director, Lois Roth Endowment (since 2002); Director, | ||
Council for International Educational Exchange (since 2003). | ||
Steven R. Pruchansky, Born: 1944 | 2005 | 53 |
Chairman and Chief Executive Officer, Greenscapes of Southwest Florida, Inc. | ||
(since 2000); Director and President, Greenscapes of Southwest Florida, Inc. | ||
(until 2000); Managing Director, JonJames, LLC (real estate) (since 2001); | ||
Director, First Signature Bank & Trust Company (until 1991); Director, Mast | ||
Realty Trust (until 1994); President, Maxwell Building Corp. (until 1991). |
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Non-Independent Trustee3 | ||
Name, age | Number of | |
Position(s) held with Fund | Trustee | John Hancock |
Principal occupation(s) and other | of Fund | funds overseen |
directorships during past 5 years | since1 | by Trustee |
James R. Boyle, Born: 1959 | 2005 | 237 |
President, John Hancock Annuities; Executive Vice President, John Hancock | ||
Life Insurance Company (since June, 2004); Chairman and Director, John | ||
Hancock Advisers, LLC (the “Adviser”); John Hancock Funds, LLC (“John | ||
Hancock Funds”) and The Berkeley Financial Group, LLC (“The Berkeley | ||
Group”) (holding company) (since 2005); President U.S. Annuities; Senior | ||
Vice President, The Manufacturers Life Insurance Company (U.S.A.) (prior | ||
to 2004). | ||
Principal officers who are not Trustees | ||
Name, age | ||
Position(s) held with Fund | Officer | |
Principal occupation(s) and | of Fund | |
directorships during past 5 years | since | |
Keith F. Hartstein, Born: 1956 | 2005 | |
President and Chief Executive Officer | ||
Senior Vice President, Manulife Financial Corporation (since 2004); Director, | ||
President and Chief Executive Officer, the Adviser and The Berkeley Group; | ||
Director, President and Chief Executive Officer, John Hancock Funds; Director, | ||
President and Chief Executive Officer, Sovereign Asset Management LLC | ||
(“Sovereign”); Director, John Hancock Signature Services, Inc.; President, John | ||
Hancock Trust; Chairman and President, NM Capital Management, Inc. (NM | ||
Capital) (since 2005); Chairman, Investment Company Institute Sales Force | ||
Marketing Committee (since 2003); Executive Vice President, John Hancock | ||
Funds (until 2005). | ||
William H. King, Born: 1952 | 1993 | |
Vice President and Treasurer | ||
Vice President and Assistant Treasurer, the Adviser; Vice President and Treasurer | ||
of each of the John Hancock funds advised by the Adviser; Assistant Treasurer | ||
of each of the John Hancock funds (until 2001). | ||
Francis V. Knox, Jr., Born: 1947 | 2005 | |
Vice President and Chief Compliance Officer | ||
Vice President and Chief Compliance Officer for John Hancock Investment | ||
Company, John Hancock Life Insurance Company (U.S.A.), John Hancock Life | ||
Insurance Company and John Hancock Funds (since 2005); Fidelity Investments - | ||
Vice President and Assistant Treasurer, Fidelity Group of Funds (until 2004); | ||
Fidelity Investments - Vice President and Ethics & Compliance Officer (until 2001). | ||
John G. Vrysen, Born: 1955 | 2005 | |
Executive Vice President and Chief Financial Officer; Director, the Adviser, | ||
The Berkeley Group and John Hancock Funds. | ||
Executive Vice President and Chief Financial Officer, the Adviser, Sovereign, | ||
The Berkeley Group and John Hancock Funds (since 2005); Vice President and | ||
General Manager, Fixed Annuities, U.S. Wealth Management (until 2005); Vice | ||
President, Operations, Manulife Wood Logan (July 2000 thru September 2004). |
33
Notes to Trustees and Officers pages |
The business address for all Trustees and Officers is 601 Congress Street, Boston, Massachusetts 02210-2805.
The Statement of Additional Information of the Fund includes additional information about members of the Board of Trustees of the Fund and is available, without charge, upon request, by calling 1-800-225-5291.
1 Each Trustee serves until resignation, retirement age or until his or her successor is elected.
2 Member of Audit Committee. |
3 Non-independent Trustees hold positions with the Fund’s investment adviser, underwriter and certain other affiliates.
34
OUR FAMILY OF FUNDS |
Equity | Balanced Fund |
Classic Value Fund | |
Core Equity Fund | |
Focused Equity Fund | |
Growth Trends Fund | |
International Fund | |
Large Cap Equity Fund | |
Large Cap Growth Fund | |
Large Cap Select Fund | |
Mid Cap Growth Fund | |
Multi Cap Growth Fund | |
Small Cap Equity Fund | |
Small Cap Growth Fund | |
Sovereign Investors Fund | |
U.S. Global Leaders Growth Fund | |
Asset Allocation and | Allocation Growth + Value Portfolio |
Lifestyle Portfolios | Allocation Core Portfolio |
Lifestyle Aggressive Portfolio | |
Lifestyle Growth Portfolio | |
Lifestyle Balanced Portfolio | |
Lifestyle Moderate Portfolio | |
Lifestyle Conservative Portfolio | |
Sector | Biotechnology Fund |
Financial Industries Fund | |
Health Sciences Fund | |
Real Estate Fund | |
Regional Bank Fund | |
Technology Fund | |
Income | Bond Fund |
Government Income Fund | |
High Yield Fund | |
Investment Grade Bond Fund | |
Strategic Income Fund | |
Tax-Free Income | California Tax-Free Income Fund |
High Yield Municipal Bond Fund | |
Massachusetts Tax-Free Income Fund | |
New York Tax-Free Income Fund | |
Tax-Free Bond Fund | |
Money Market | Money Market Fund |
U.S. Government Cash Reserve |
For more complete information on any John Hancock Fund and a prospectus, which includes charges and expenses, call your financial professional, or John Hancock Funds at 1-800-225-5291. Please read the prospectus carefully before investing or sending money.
35
ELECTRONIC DELIVERY |
Now available from John Hancock Funds |
Instead of sending annual and semiannual reports and prospectuses through the U.S. mail, we’ll notify you by e-mail when these documents are available for online viewing.
How does electronic delivery benefit you? | |
* | No more waiting for the mail to arrive; you’ll receive an |
e-mail notification as soon as the document is ready for | |
online viewing. | |
* | Reduces the amount of paper mail you receive from |
John Hancock Funds. | |
* | Reduces costs associated with printing and mailing. |
Sign up for electronic delivery today at www.jhfunds.com/edelivery |
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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 |
Investment adviser | Custodian | Legal counsel |
John Hancock Advisers, LLC | The Bank of New York | Wilmer Cutler Pickering |
601 Congress Street | One Wall Street | Hale and Dorr LLP |
Boston, MA 02210-2805 | New York, NY 10286 | 60 State Street |
Boston, MA 02109-1803 | ||
Principal distributor | Transfer agent | |
John Hancock Funds, LLC | John Hancock Signature | Independent registered |
601 Congress Street | Services, Inc. | public accounting firm |
Boston, MA 02210-2805 | 1 John Hancock Way, | PricewaterhouseCoopers LLP |
Suite 1000 | 125 High Street | |
Boston, MA 02217-1000 | Boston, MA 02110 |
The Fund’s investment objective, 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.
How to contact us | ||
Internet | www.jhfunds.com | |
Regular mail: | Express mail: | |
John Hancock | John Hancock | |
Signature Services, Inc. | Signature Services, Inc. | |
1 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 |
24-hour automated information | 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 Securities and Exchange Commission’s Web site, www.sec.gov.
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![](https://capedge.com/proxy/N-CSR/0000928816-05-001652/x40x1mc.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 Mid Cap Growth Fund. |
3900A 10/05 12/05 |
![](https://capedge.com/proxy/N-CSR/0000928816-05-001652/x1x1if.jpg)
![](https://capedge.com/proxy/N-CSR/0000928816-05-001652/x2x1if.jpg)
Table of contents |
Your fund at a glance |
page 1 |
Managers’ report |
page 2 |
A look at performance |
page 6 |
Growth of $10,000 |
page 7 |
Your expenses |
page 8 |
Fund’s investments |
page 10 |
Financial statements |
page 14 |
Trustees & officers |
page 33 |
For more information |
page 37 |
To Our Shareholders,
I am pleased to be writing to you as the new President and Chief Executive Officer of John Hancock Funds, LLC, following the departure of James A. Shepherdson to pursue other opportunities. In addition, on July 25, 2005, your fund’s Board of Trustees appointed me to the roles of Trustee, President and Chief Executive Officer of your fund.
As a means of introduction, I have been involved in the mutual fund industry since 1985. I have been with John Hancock Funds for the last 15 years, most recently as executive vice president of retail sales and marketing and a member of the company’s executive and investment committees. In my former capacity, I was responsible for all aspects of the distribution and marketing of John Hancock Funds’ open-end and closed-end mutual funds. Outside of John Hancock, I have served as Chairman of the Investment Company Institute (ICI) Sales Force Marketing Committee since September of 2003.
It is an exciting time to be at John Hancock Funds, and I am grateful for the opportunity to lead and shape its further growth. With the acquisition of John Hancock by Manulife Financial Corporation in April 2004, we are receiving broad support toward the goal of providing our shareholders with excellent investment opportunities and a more complete lineup of choices for the discerning investor.
For one example, we have recently added five “Lifestyle Portfolio” funds-of-funds that blend multiple fund offerings from internal and external money managers to create a broadly diversified asset allocation portfolio. Look for more information about these exciting additions to the John Hancock family of funds in the near future. Although there has been a change in executive-level management, rest assured that the one thing that never wavers is John Hancock Funds’ commitment to placing the needs of shareholders above all else. We are all dedicated to the task of working with you and your financial advisors to help you reach your long-term financial goals.
Sincerely,
![](https://capedge.com/proxy/N-CSR/0000928816-05-001652/x2x2if.jpg)
Keith F. Hartstein, President and Chief Executive Officer |
This commentary reflects the CEO’s views as of October 31, 2005. They are subject to change at any time.
YOUR FUND AT A GLANCE |
The Fund seeks long-term growth of capital by normally investing at least 80% of its assets in stocks of foreign companies. |
- Over the last twelve months
- International markets marked a third consecutive year of solid outperformance.
- The Fund outperformed its peers and benchmark index in part due to superior stock selection among financials, consumer discretionary and materials companies.
- The Fund posted gains in relative and absolute terms, with strong returns in almost every sector and in the majority of countries where positions were held.
![](https://capedge.com/proxy/N-CSR/0000928816-05-001652/x3x1if.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 | |
4.8% | Mitsubishi UFJ Financial Group, Inc. |
3.2% | Roche Holding AG |
2.9% | Rogers Communications, Inc. |
2.8% | Nomura Holdings, Inc. |
2.4% | NTT DoCoMo, Inc. |
2.2% | Banco Bilbao Vizcaya Argentaria SA |
2.0% | Sanofi-Aventis SA |
1.9% | Toyota Motor Corp. |
1.9% | Merck KGaA |
1.8% | Hutchison Telecommunications International Ltd. |
As a percentage of net assets on October 31, 2005.
1
BY HORACIO A. VALEIRAS, CFA, FOR THE NICHOLAS-APPLEGATE CAPITAL MANAGEMENT PORTFOLIO MANAGEMENT TEAM |
MANAGERS’ REPORT
JOHN HANCOCK
International Fund |
The twelve months ended October 31, 2005 marked a third consecutive year of solid performance for international investors. Although a moderately strengthening dollar dampened international equity performance from an American perspective, the currency movement was insufficient to mitigate the strong results U.S. investors received.
Falling oil prices buoyed international equity markets for the last two months of 2004, but the following six months were marked by malaise. Energy costs gradually increased, corporate earnings in Japan fell short of expectations and French and Dutch voters rejected the European Union constitution. Markets were generally down or flat for the period. In July the tide turned. Reports con-firmed growing economic strength in Japan and the Chinese revaluation of the yuan improved global trade balances. Soaring oil prices, terrorist attacks in London and hurricanes in the U.S. failed to offset strong corporate earnings and improving business sentiments as international markets posted solid gains from August through fiscal year-end.
“The twelve months ended October 31, 2005 marked a third consecutive year of solid performance for international investors.” |
From a country standpoint, equity gains were again broad-based in the period. The vast majority of countries posted double-digit returns, with stocks in many exchanges up by over 30%. Strong corporate profits and healthy balance sheets in Europe propelled merger and acquisition activity in the region and boosted equity values. Japan was the market’s darling during the latter half of the year as Prime Minister Koizumi won a reform mandate from voters and the country’s budding domestic-led economic revival took shape. Emerging countries saw some of the strongest relative advances during the period based on abundant liquidity, improving fundamentals and climbing commodities prices.
Equities performed well across sectors in 2005. Every sector in the MSCI All Country World Ex-U.S. Index closed the year in positive
2
territory, with all but one group posting double-digit returns and the majority of groups gaining over 20%. On average, energy and materials companies performed the best during the period as skyrocketing oil prices and strong demand for commodities pushed up corporate earnings. Information technology, the only negative performing sector in 2004, continued to lag peers with performance in the single digits.
Fund performance explained
For the 12 months ended October 31, 2005, John Hancock International Fund’s Class A, Class B, Class C and Class I shares gained 19.14%, 18.20%, 18.36% and 20.00%, respectively, at net asset value. During the same period, the average international multi-cap growth fund advanced 17.46%, according to Lipper, Inc.1, while the benchmark MSCI All Country World Ex-U.S. Index rose 17.26% . 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 and did not reinvest all distributions. See pages six and seven for historical performance information.
Positive results widespread
The Fund posted gains in relative and absolute terms during the year, with strong returns in almost every sector and in the majority of countries where positions were held. Outperformance compared to both the Fund’s peer group and the benchmark MSCI All Country World Ex-U.S. Index can be attributed in part to superior security selection among Japanese, Chinese and Canadian firms, and relative asset weightings in the U.K., Japan and Egypt. From a sector standpoint, stock picks among financials, consumer discretionary and materials companies were the largest contributors to performance. Beyond stock selection and asset weighting, the Fund also benefited from our growth-oriented investment philosophy. While we focus on growth companies, our benchmark and peer group invest in both growth and value businesses.
“The Fund posted gains in relative and absolute terms during the year, with strong returns in almost every sector...” |
The primary detractors to Fund performance included poor stock selection in the U.K. and France, and among consumer staples and
3
Sector |
distribution2 |
Financials -- 21% |
Telecommunication |
services -- 16% |
Consumer |
discretionary -- 11% |
Materials -- 11% |
Industrials -- 10% |
Information |
technology -- 10% |
Health care -- 8% |
Energy -- 6% |
Consumer |
staples -- 6% |
utilities companies. Performance was further dampened by unfavorable relative weighting in Thailand and China, and overweighting in the telecommunication and information technology sectors.
Select stocks
The best performing stocks in the Fund over the year were Mitsubishi UFJ Financial Group, Inc., a Japanese bank benefiting from the country’s growing economic recovery; Foxconn International Holdings, Ltd., a Chinese mobile phone handset manufacturer that profited from outsourcing trends and increased global telephony penetration; and Rogers Communications, Inc., a Canadian wireless and cable communications firm that gained from increased mobile penetration and an improving competitive environment. The largest declining issues included William Morrisons, a U.K. supermarket chain with integration challenges following a major acquisition; Italian-Thai Development, a construction business impacted by the Thai government’s deteriorating budgetary prospects; and Global BioChem, a Chinese biochemical producer hurt by falling global lysine prices. We sold all three stocks.
Top five countries2 |
Japan 25% |
Canada 9% |
Switzerland 9% |
France 6% |
Netherlands 6% |
Fund moves
Over the past twelve months, our bottom-up investment process resulted in shifts in the Fund’s overall country and sector weightings. Among Asian markets, we trimmed positions in Hong Kong and Australia in favor of growing opportunities in Japan, China and India. In Europe and North America, we exploited improving prospects in Canada and Switzerland and cut exposure in the U.K and Italy. Fund positions in the consumer discretionary sector were sharply reduced and holdings in energy, materials and information technology companies were bolstered.
4
![](https://capedge.com/proxy/N-CSR/0000928816-05-001652/x7x1if.jpg)
Throughout the year the Fund remained well diversified, with investments spread across countries and sectors. Relative to the benchmark, on October 31, the Fund was underweight in Europe and Latin America and overweight in North America and both emerging and developed Asia. We also held comparatively larger positions in telecommunications and information technology and comparatively smaller positions in financials and utilities.
“Our geographical preference remains Asia, where we see continuing expansion and increased wealth creation.” |
Outlook
High energy prices and inflation concerns are expected to dampen international markets for the near term. Regardless, leading indicators in Europe are improving -- business confidence in France and Germany is up and consumer sentiment in Italy has risen. Furthermore, the Japanese recovery appears to be on solid footing. Japan has been surprisingly strong in terms of growth, and the economy is showing concrete signs of emerging from a sustained period of damaging deflation. Our geographical preference remains Asia, where we see continuing expansion and increased wealth creation. Macroeconomic risks pose the greatest threat to international growth. To a large degree, the extent of expansion in 2006 will be affected by the price of energy and forthcoming information on inflation and monetary policy.
This commentary reflects the views of the portfolio management team 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. |
1 Figures from Lipper, 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 October 31, 2005. |
5
A LOOK AT PERFORMANCE |
For the period ended October 31, 2005 |
Class A | Class B | Class C | Class I1 | |
Inception date | 1-3-94 | 1-3-94 | 6-1-98 | 3-1-02 |
Average annual returns with maximum sales charge (POP) | ||||
One year | 13.13% | 13.20% | 17.36% | 20.00% |
Five years | -4.08 | -4.19 | -3.80 | -- |
Ten years | -0.10 | -0.13 | -- | -- |
Since inception | -- | -- | -2.47 | 8.47 |
Cumulative total returns with maximum sales charge (POP) | ||||
One year | 13.13 | 13.20 | 17.36 | 20.00 |
Five years | -18.82 | -19.25 | -17.61 | -- |
Ten years | -0.96 | -1.30 | -- | -- |
Since inception | -- | -- | -16.93 | 34.76 |
Performance figures assume all distributions are reinvested. Returns with maximum sales charge 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 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. 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.
1For certain types of investors as described in the Fund’s Class I share prospectus.
6
GROWTH OF $10,000 |
This chart shows what happened to a hypothetical $10,000 investment in Class A shares for the period indicated. For comparison, we’ve shown the same investment in the MSCI All Country World Ex-U.S. Index.
![](https://capedge.com/proxy/N-CSR/0000928816-05-001652/x9x1if.jpg)
Class B1 | Class C1 | Class I2 | |
Period beginning | 10-31-95 | 6-1-98 | 3-1-02 |
International Fund | $9,870 | $8,307 | $13,476 |
Index | 15,221 | 12,402 | 14,694 |
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 October 31, 2005. 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.
Morgan Stanley Capital International (MSCI) All Country World Ex-U.S. Index is an unmanaged index of freely traded stocks of foreign companies.
It is not possible to invest directly in an index. Index figures do not reflect sales charges and would be lower if they did.
1 No contingent deferred sales charge applicable.
2 For certain types of investors as described in the Fund’s Class I share prospectus.
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 April 30, 2005, with the same investment held until October 31, 2005.
Account value | Expenses paid | |
$1,000.00 | Ending value | during period |
on 4-30-05 | on 10-31-05 | ended 10-31-051 |
Class A | $1,102.80 | $11.46 |
Class B | 1,097.60 | 15.21 |
Class C | 1,099.10 | 15.22 |
Class I | 1,106.80 | 7.25 |
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 October 31, 2005 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-CSR/0000928816-05-001652/x10x1if.jpg)
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% annual return before expenses (which is not your fund’s actual return). It assumes an account value of $1,000.00 on April 30, 2005, with the same investment held until October 31, 2005. Look in any other fund shareholder report to find its hypothetical example and you will be able to compare these expenses.
Account value | Expenses paid | |
$1,000.00 | Ending value | during period |
on 4-30-05 | on 10-31-05 | ended 10-31-051 |
Class A | $1,014.30 | $10.98 |
Class B | 1,010.70 | 14.58 |
Class C | 1,010.70 | 14.58 |
Class I | 1,018.33 | 6.94 |
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 2.16%, 2.87%, 2.87% and 1.36% 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).
9
F I N A N C I A L S TAT E M E N T S |
FUND’S INVESTMENTS |
Securities owned by the Fund on October 31, 2005 |
This schedule is divided into three main categories: common stocks, warrants and short-term investments. The common stocks and warrants are further broken down by country. Short-term investments, which represent the Fund’s cash position, are listed last.
Issuer | Shares | Value |
Common stocks 96.19% | $98,117,116 | |
(Cost $86,235,152) | ||
Canada 9.49% | 9,675,895 | |
Cameco Corp. (Diversified Metals & Mining) | 28,100 | 1,352,888 |
Canadian Pacific Railway Ltd. (Railroads) | 23,300 | 959,023 |
EnCana Corp. (Oil & Gas Exploration & Production) | 25,700 | 1,176,550 |
Rogers Communications, Inc. (Class B) | ||
(Wireless Telecommunication Services) | 75,400 | 2,978,797 |
Teck Cominco Ltd. (Diversified Metals & Mining) | 19,200 | 809,963 |
Telus Corp. (Integrated Telecommunication Services) | 39,600 | 1,487,581 |
Thomson Corp. (The) (Publishing) | 26,800 | 911,093 |
China 3.79% | 3,869,530 | |
China Shenhua Energy Co., Ltd. (Diversified Metals & Mining) (I) | 863,500 | 946,777 |
Foxconn International Holdings Ltd. (Communications Equipment) (I) | 1,648,000 | 1,764,420 |
PetroChina Co., Ltd. (Integrated Oil & Gas) | 1,522,000 | 1,158,333 |
Finland 1.27% | 1,295,140 | |
Nokia Corp., American Depositary Receipt (ADR) | ||
(Wireless Telecommunication Services) | 77,000 | 1,295,140 |
France 6.12% | 6,245,001 | |
PSA Peugeot Citroen (Automobile Manufacturers) | 16,231 | 985,642 |
Publicis Groupe (Advertising) | 34,731 | 1,148,134 |
Sanofi-Aventis SA (Pharmaceuticals) | 25,593 | 2,047,688 |
Total SA (Integrated Oil & Gas) | 6,191 | 1,552,757 |
Veolia Evironment (Multi-Utilities & Unregulated Power) | 12,279 | 510,780 |
Germany 4.94% | 5,042,655 | |
Bayer AG (Diversified Chemicals) | 26,706 | 925,707 |
Bayerische Motoren Werke (BMW) AG (Automobile Manufacturers) | 25,058 | 1,089,179 |
Hypo Real Estate Holding AG (Thrifts & Mortgage Finance) | 23,471 | 1,130,961 |
Merck KGaA (Pharmaceuticals) | 22,958 | 1,896,808 |
See notes to financial statements. |
10
F I N A N C I A L S TAT E M E N T S |
Issuer | Shares | Value |
Greece 3.67% | $3,748,330 | |
Coca-Cola Hellenic Bottling Co. SA (Soft Drinks) | 34,030 | 926,869 |
Hellenic Telecommunications Organization SA | ||
(Integrated Telecommunication Services) (I) | 60,610 | 1,251,548 |
National Bank of Greece SA (Diversified Banks) | 40,305 | 1,569,913 |
Hong Kong 2.86% | 2,919,121 | |
Cheung Kong Holdings Ltd. (Real Estate Management & Development) | 101,000 | 1,050,733 |
Hutchison Telecommunications International Ltd. | ||
(Integrated Telecommunication Services) (I) | 1,478,000 | 1,868,388 |
Indonesia 0.47% | 477,180 | |
PT Indosat Tbk, ADR (Integrated Telecommunication Services) | 19,800 | 477,180 |
Ireland 1.09% | 1,110,778 | |
CRH Plc (Construction Materials) | 44,479 | 1,110,778 |
Israel 1.58% | 1,613,671 | |
Israel Chemicals Ltd. (Diversified Chemicals) | 226,406 | 858,776 |
Makhteshim-Agan Industries Ltd. (Diversified Chemicals) | 131,584 | 754,895 |
Italy 2.62% | 2,673,244 | |
ENI SpA (Integrated Oil & Gas) | 61,688 | 1,652,108 |
UniCredito Italiano SpA (Diversified Banks) | 184,135 | 1,021,136 |
Japan 25.10% | 25,598,832 | |
Hitachi Construction Machinery Co., Ltd. | ||
(Construction & Farm Machinery & Heavy Trucks) | 66,200 | 1,251,149 |
Japan Tobacco, Inc. (Tobacco) | 97 | 1,533,267 |
Kajima Corp. (Construction & Engineering) | 180,000 | 929,342 |
Mitsubishi Estate Co., Ltd. (Real Estate Management & Development) | 98,000 | 1,442,155 |
Mitsubishi UFJ Financial Group, Inc. (Diversified Banks) | 395 | 4,920,321 |
Mitsui & Co., Ltd. (Trading Companies & Distributors) | 127,000 | 1,552,519 |
Murata Manufacturing Co., Ltd. (Electronic Equipment Manufacturers) | 18,600 | 921,971 |
Nisshinbo Industries, Inc. (Textiles) | 27,000 | 264,422 |
Nitori Co., Ltd. (Specialty Stores) | 6,980 | 527,675 |
Nomura Holdings, Inc. (Investment Banking & Brokerage) | 188,000 | 2,852,180 |
NTT DoCoMo, Inc. (Wireless Telecommunication Services) | 1,446 | 2,484,429 |
Shin-Etsu Chemcial Co., Ltd. (Specialty Chemicals) | 37,600 | 1,789,476 |
Teijin Ltd. (Textiles) | 249,000 | 1,475,968 |
Tokyo Electron Ltd. (Semiconductor Equipment) | 34,000 | 1,697,006 |
Toyota Motor Corp. (Automobile Manufacturers) | 42,900 | 1,956,952 |
See notes to financial statements. |
11
F I N A N C I A L S TAT E M E N T S | ||
Issuer | Shares | Value |
Luxembourg 1.65% | $1,683,821 | |
Millicom International Cellular SA | ||
(Wireless Telecommunication Services) (I) | 37,800 | 719,334 |
Stolt Offshore SA (Oil & Gas Equipment & Services) (I) | 92,200 | 964,487 |
Netherlands 5.90% | 6,014,081 | |
Aegon NV (Life & Health Insurance) | 101,860 | 1,531,135 |
ASML Holding NV (Semiconductor Equipment) | 103,796 | 1,752,935 |
Royal Numico NV (Packaged Foods & Meats) (I) | 42,373 | 1,714,411 |
STMicroelectronics NV (Semiconductors) | 61,757 | 1,015,600 |
Norway 1.61% | 1,645,025 | |
Telenor ASA (Integrated Telecommunication Services) | 168,400 | 1,645,025 |
South Africa 1.14% | 1,160,995 | |
Harmony Gold Mining Co., Ltd. (Gold) (I) | 111,100 | 1,160,995 |
South Korea 3.93% | 4,010,828 | |
Daewoo Shipbuilding & Marine Engineering Co., Ltd. (Marine) | 66,080 | 1,321,346 |
Kookmin Bank, ADR (Diversified Banks) | 19,500 | 1,139,190 |
LG Electronics, Inc. (Consumer Electronics) | 23,820 | 1,550,292 |
Spain 2.15% | 2,195,878 | |
Banco Bilbao Vizcaya Argentaria SA (Diversified Banks) | 124,632 | 2,195,878 |
Sweden 1.26% | 1,286,244 | |
Atlas Copco AB (Industrial Machinery) | 70,400 | 1,286,244 |
Switzerland 8.63% | 8,802,164 | |
ABB Ltd. (Heavy Electrical Equipment) | 205,531 | 1,569,619 |
EFG International (Diversified Banks) | 34,893 | 1,001,306 |
Roche Holding AG (Pharmaceuticals) | 21,799 | 3,251,868 |
Straumann AG (Health Care Equipment) | 5,016 | 1,167,460 |
UBS AG (Diversified Capital Markets) | 21,364 | 1,811,911 |
Thailand 0.96% | 977,936 | |
True Corp. Pcl (Integrated Telecommunication Services) (I) | 5,391,200 | 977,936 |
United Kingdom 4.94% | 5,034,135 | |
ARM Holdings Plc (Semiconductors) | 739,734 | 1,424,097 |
Carphone Warehouse Plc (The) (Computer & Electronics Retail) | 287,657 | 998,081 |
Diageo Plc (Distillers & Vintners) | 101,908 | 1,506,362 |
Intertek Group Plc (Diversified Commercial Services) | 87,655 | 1,105,595 |
United States 1.02% | 1,036,632 | |
Southern Copper Corp. (Diversified Metals & Mining) | 18,800 | 1,036,632 |
See notes to | ||
financial statements. |
12
F I N A N C I A L S TAT E M E N T S |
Issuer | Shares | Value | |
Securities -- Linked Warrants 2.62% | $2,673,521 | ||
(Cost $2,731,024) | |||
India 0.24% | 250,703 | ||
Bharti Tele-Ventures Ltd. (Intergrated Telecommunication | |||
Services) (B)(I)(R) | 35,020 | 250,703 | |
Luxembourg 1.14% | 1,160,451 | ||
Bharti Tele-Ventures Ltd. (Intergrated Telecommunication | |||
Services) (B)(I)(R) | 162,100 | 1,160,451 | |
Taiwan 1.24% | 1,262,367 | ||
Advanced Semiconductor Engineering, Inc. (Semiconductor | |||
Equipment) (B)(I)(R) | 2,071,117 | 1,262,367 | |
Interest | Par value | ||
Issuer, description, maturity date | rate | (000) | Value |
Short-term investments 2.72% | $2,777,000 | ||
(Cost $2,777,000) | |||
Joint Repurchase Agreement 2.72% | 2,777,000 | ||
Investment in a joint repurchase agreement transaction | |||
with Barclays Capital, Inc. -- Dated 10-31-05 | |||
due 11-01-05 (secured by U.S. Treasury Inflation Indexed | |||
Note 0.875% due 04-15-10 and 1.875% due 07-15-13) | 3.940% | $2,777 | 2,777,000 |
Total investments 101.53% | $103,567,637 | ||
Other assets and liabilities, net (1.53%) | ($1,565,431) | ||
Total net assets 100.00% | $102,002,206 |
(B) | This security is fair valued in good faith under procedures established by the Board of Trustees. |
(I) | Non-income-producing security. |
(R) | Equity-linked warrant. |
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. |
13
F I N A N C I A L S TAT E M E N T S |
ASSETS AND LIABILITIES |
October 31, 2005 |
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 $91,743,176) | $103,567,637 |
Cash | 683 |
Foreign cash, at value (cost $8,852) | 8,940 |
Receivable for investments sold | 501,326 |
Receivable for shares sold | 63,628 |
Dividends and interest receivable | 139,215 |
Receivable from affiliates | 6,669 |
Other assets | 11,358 |
Total assets | 104,299,456 |
Liabilities | |
Payable for investments purchased | 1,774,481 |
Payable for shares repurchased | 178,659 |
Payable to affiliates | |
Management fees | 161,379 |
Distribution and service fees | 6,722 |
Other | 57,845 |
Other payables and accrued expenses | 118,164 |
Total liabilities | 2,297,250 |
Net assets | |
Capital paid-in | 147,666,418 |
Accumulated net realized loss on investments | |
and foreign currency transactions | (57,475,506) |
Net unrealized appreciation of investments | |
and translation of assets and liabilities in | |
foreign currencies | 11,824,129 |
Accumulated net investment loss | (12,835) |
Net assets | $102,002,206 |
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 ($73,109,865 ÷ 9,208,598 shares) | $7.94 |
Class B ($23,550,827 ÷ 3,219,846 shares) | $7.31 |
Class C ($3,954,331 ÷ 540,345 shares) | $7.32 |
Class I ($1,387,183 ÷ 169,341 shares) | $8.19 |
Maximum offering price per share | |
Class A1 ($7.94 ÷ 95%) | $8.36 |
1 On single retail sales of less than $50,000. On sales of $50,000 or more and on group sales the offering price is reduced.
See notes to financial statements. |
14
F I N A N C I A L S TAT E M E N T S |
OPERATIONS |
For the year ended October 31, 2005 |
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 (including $12,985 received from | |
affiliated issuers and net of foreign withholding | |
taxes of $195,741) | $1,776,076 |
Interest | 41,502 |
Total investment income | 1,817,578 |
Expenses | |
Investment management fees | 895,526 |
Class A distribution and service fees | 208,445 |
Class B distribution and service fees | 248,003 |
Class C distribution and service fees | 39,434 |
Class A, B and C transfer agent fees | 530,551 |
Class I transfer agent fees | 639 |
Custodian fees | 164,375 |
Registration and filing fees | 59,879 |
Printing | 58,258 |
Professional fees | 41,592 |
Accounting and legal services fees | 24,876 |
Miscellaneous | 20,155 |
Trustees’ fees | 4,568 |
Interest | 2,307 |
Total expenses | 2,298,608 |
Less expense reductions | (38,955) |
Net expenses | 2,259,653 |
Net investment loss | (442,075) |
Realized and unrealized gain (loss) | |
Net realized gain (loss) on | |
Investments (including $345,764 net realized | |
gain on sales of investments in affiliated issuers) | 15,422,641 |
Foreign currency transactions | (864,318) |
Change in net unrealized appreciation (depreciation) of | |
Investments | 2,768,964 |
Translation of assets and liabilities in foreign currencies | 61,266 |
Net realized and unrealized gain | 17,388,553 |
Increase in net assets from operations | $16,946,478 |
See notes to financial statements. |
15
F I N A N C I A L S TAT E M E N T S |
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 | Year | |
ended | ended | |
10-31-04 | 10-31-05 | |
Increase (decrease) in net assets | ||
From operations | ||
Net Investment loss | ($492,570) | ($442,075) |
Net realized gain | 16,578,291 | 14,558,323 |
Change in net unrealized | ||
appreciation (depreciation) | (8,094,661) | 2,830,230 |
Increase in net assets | ||
resulting from operations | 7,991,060 | 16,946,478 |
Distributions to shareholders | ||
From net realized gain | ||
Class A | -- | (1,112,572) |
Class B | -- | (483,477) |
Class C | -- | (70,732) |
Class I | -- | (22,383) |
-- | (1,689,164) | |
From Fund share transactions | (10,403,583) | (7,706,210) |
Net assets | ||
Beginning of period | 96,863,625 | 94,451,102 |
End of period1 | $94,451,102 | $102,002,206 |
1 Includes accumulated net investment income (loss) of $50,264 and ($12,835), respectively.
See notes to financial statements. |
16
F I N A N C I A L H I G H L I G H T S |
FINANCIAL HIGHLIGHTS |
CLASS A SHARES
The Financial Highlights show how the Fund’s net asset value for a
share has changed since the end of the previous period.
Period ended | 10-31-01 | 10-31-02 | 10-31-03 | 10-31-04 | 10-31-05 |
Per share operating performance | |||||
Net asset value, | |||||
beginning of period | $9.45 | $6.18 | $5.10 | $6.21 | $6.78 |
Net investment loss1 | (0.05) | (0.04) | (0.04) | (0.02) | (0.02) |
Net realized and unrealized | |||||
gain (loss) on investments | (3.22) | (1.04) | 1.15 | 0.59 | 1.30 |
Total from | |||||
investment operations | (3.27) | (1.08) | 1.11 | 0.57 | 1.28 |
Less distributions | |||||
From net realized gain | -- | -- | -- | -- | (0.12) |
Net asset value, end of period | $6.18 | $5.10 | $6.21 | $6.78 | $7.94 |
Total return2,3 (%) | (34.60) | (17.48) | 21.76 | 9.18 | 19.14 |
Ratios and supplemental data | |||||
Net assets, end of period | |||||
(in millions) | $8 | $6 | $62 | $64 | $73 |
Ratio of expenses | |||||
to average net assets (%) | 2.23 | 2.38 | 2.45 | 2.04 | 2.08 |
Ratio of adjusted expenses | |||||
to average net assets4 (%) | 3.83 | 4.43 | 3.00 | 2.07 | 2.12 |
Ratio of net investment loss | |||||
to average net assets (%) | (0.65) | (0.68) | (0.63) | (0.27) | (0.24) |
Portfolio turnover (%) | 278 | 2285 | 2165 | 201 | 176 |
See notes to financial statements. |
17
F I N A N C I A L H I G H L I G H T S |
CLASS B SHARES
Period ended | 10-31-01 | 10-31-02 | 10-31-03 | 10-31-04 | 10-31-05 |
Per share operating performance | |||||
Net asset value, | |||||
beginning of period | $9.04 | $5.86 | $4.81 | $5.81 | $6.30 |
Net investment loss1 | (0.10) | (0.08) | (0.07) | (0.06) | (0.07) |
Net realized and unrealized | |||||
gain (loss) on investments | (3.08) | (0.97) | 1.07 | 0.55 | 1.20 |
Total from | |||||
investment operations | (3.18) | (1.05) | 1.00 | 0.49 | 1.13 |
Less distributions | |||||
From net realized gain | -- | -- | -- | -- | (0.12) |
Net asset value, end of period | $5.86 | $4.81 | $5.81 | $6.30 | $7.31 |
Total return2,3 (%) | (35.18) | (17.92) | 20.79 | 8.43 | 18.20 |
Ratios and supplemental data | |||||
Net assets, end of period | |||||
(in millions) | $6 | $5 | $30 | $26 | $24 |
Ratio of expenses | |||||
to average net assets (%) | 2.93 | 3.08 | 3.15 | 2.74 | 2.78 |
Ratio of adjusted expenses | |||||
to average net assets4 (%) | 4.53 | 5.13 | 3.70 | 2.77 | 2.82 |
Ratio of net investment loss | |||||
to average net assets (%) | (1.34) | (1.38) | (1.28) | (0.98) | (0.97) |
Portfolio turnover (%) | 278 | 2285 | 2165 | 201 | 176 |
See notes to financial statements. |
18
F I N A N C I A L H I G H L I G H T S |
CLASS C SHARES
Period ended | 10-31-01 | 10-31-02 | 10-31-03 | 10-31-04 | 10-31-05 |
Per share operating performance | |||||
Net asset value, | |||||
beginning of period | $9.05 | $5.87 | $4.81 | $5.81 | $6.30 |
Net investment loss1 | (0.10) | (0.08) | (0.06) | (0.06) | (0.07) |
Net realized and unrealized | |||||
gain (loss) on investments | (3.08) | (0.98) | 1.06 | 0.55 | 1.21 |
Total from | |||||
investment operations | (3.18) | (1.06) | 1.00 | 0.49 | 1.14 |
Less distributions | |||||
From net realized gain | -- | -- | -- | -- | (0.12) |
Net asset value, end of period | $5.87 | $4.81 | $5.81 | $6.30 | $7.32 |
Total return2,3 (%) | (35.14) | (18.06) | 20.79 | 8.43 | 18.36 |
Ratios and supplemental data | |||||
Net assets, end of period | |||||
(in millions) | $1 | $1 | $3 | $4 | $4 |
Ratio of expenses | |||||
to average net assets (%) | 2.93 | 3.08 | 3.15 | 2.73 | 2.78 |
Ratio of adjusted expenses | |||||
to average net assets4 (%) | 4.53 | 5.13 | 3.70 | 2.76 | 2.82 |
Ratio of net investment loss | |||||
to average net assets (%) | (1.35) | (1.38) | (1.11) | (0.96) | (1.00) |
Portfolio turnover (%) | 278 | 2285 | 2165 | 201 | 176 |
See notes to financial statements. |
19
F I N A N C I A L H I G H L I G H T S |
CLASS I SHARES
Period ended | 10-31-026 | 10-31-03 | 10-31-04 | 10-31-05 |
Per share operating performance | ||||
Net asset value, | ||||
beginning of period | $6.18 | $5.12 | $6.30 | $6.94 |
Net investment income (loss)1 | (0.01) | 0.03 | 0.04 | 0.04 |
Net realized and unrealized | ||||
gain (loss) on investments | (1.05) | 1.15 | 0.60 | 1.33 |
Total from | ||||
investment operations | (1.06) | 1.18 | 0.64 | 1.37 |
Less distributions | ||||
From net realized gain | -- | -- | -- | (0.12) |
Net asset value, end of period | $5.12 | $6.30 | $6.94 | $8.19 |
Total return2 (%) | (17.15)3,7 | 23.053 | 10.16 | 20.003 |
Ratios and supplemental data | ||||
Net assets, end of period | ||||
(in millions) | $1 | $1 | $1 | $1 |
Ratio of expenses | ||||
to average net assets (%) | 2.048 | 1.60 | 1.17 | 1.32 |
Ratio of adjusted expenses | ||||
to average net assets4 (%) | 4.098 | 2.15 | -- | 1.33 |
Ratio of net investment income (loss) | ||||
to average net assets (%) | (0.34)8 | 0.58 | 0.60 | 0.51 |
Portfolio turnover (%) | 2285 | 2165 | 201 | 176 |
1 | Based on the average of the shares outstanding. |
2 | Assumes dividend reinvestment and does not reflect the effect of sales charges. |
3 | Total returns would have been lower had certain expenses not been reduced during the periods shown. |
4 | Does not take into consideration expense reductions during the periods shown. |
5 | Excludes merger activity. |
6 | Class I shares began operations on 3-01-02. |
7 | Not annualized. |
8 | Annualized. |
See notes to financial statements. |
20
NOTES TO STATEMENTS |
Note A Accounting policies |
John Hancock International Fund (the “Fund”) is a diversified series of John Hancock Investment Trust III, an open-end management investment company registered under the Investment Company Act of 1940. 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 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.
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 close 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. 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 Securities and Exchange Commission, the Fund, along with other registered investment companies having a management contract with John Hancock Advisers, LLC (the “Adviser”), a wholly owned subsidiary of John Hancock Financial Services, Inc., 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
21
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 recorded as of the date of purchase, sale or maturity. 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 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 syndicated line of credit agreement with various banks. This agreement enables the Fund to participate, with other funds managed by the Adviser, in an unsecured line of credit with banks, which permits borrowings of up to $250 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 year ended October 31, 2005.
Equity-linked warrants
The Fund may buy and sell equity-linked warrants. The Fund purchases the equity-linked warrants from a broker, who in turn purchases the shares in the local market and issues a call warrant hedged on the underlying holding. If the Fund exercises its call and closes its position, the shares are sold and the warrant redeemed with the proceeds. Each warrant represents one share of the underlying stock, therefore the price, performance and liquidity of the warrant are all directly linked to the underlying stock. The
22
warrants can be redeemed for 100% of the value of the underlying stock, less transaction costs. Equity-linked warrants are subject to risks related to the counterparty’s ability to perform under the contract, and to the market risk of the underlying holding. The Fund may also suffer losses if it is unable to sell outstanding equity-linked warrants or reduce its exposure through offsetting transactions.
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 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 October 31, 2005.
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 $67,715,810 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, 2006 -- $846,665, October 31, 2007 --$362,323, October 31, 2008 -- $48,654,862, October 31, 2009 -- $13,925,126 and October 31, 2010 -- $3,926,834. Availability of a certain amount of the carryforwards, which were acquired mergers on June 7, 2002, May 9, 2003 and on September 26, 2003, may be limited in a given year.
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. During the year ended October 31, 2004, there were no distributions. During the year ended October 31, 2005, the tax character of distributions paid was as follows: long-term capital gain $1,689,164. Distributions paid by the Fund with respect to each class of shares
23
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.
As of October 31, 2005, the components of distributable earnings on a tax basis included $3,501,973 of undistributed ordinary income and $6,766,588 of undistributed long-term gain.
Such distributions and distributable earnings, 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 B Management fee and transactions with affiliates and others |
The Adviser has agreed to limit the Fund’s total expenses, excluding the distribution and service fees and transfer agent fees, to 1.27% of the Fund’s average daily net asset value, on an annual basis, at least until February 28, 2006. Accordingly, the expense reductions related to this total expense limitation amounted to $6,669 for the year ended October 31, 2005. The Adviser reserves the right to terminate this limitation in the future.
The Fund has Distribution Plans 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 Investment Company Act of 1940, 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% of Class A average daily net asset value and 1.00% of Class B and Class C average daily net asset value. 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.
Class A shares are assessed up-front sales charges. During the year ended October 31, 2005, JH Funds received net up-front sales charges of $69,942 with regard to sales of Class A shares. Of this amount, $10,283 was retained and used for printing prospectuses, advertising, sales literature and other purposes, $46,315 was paid as sales commissions to unrelated broker-dealers and $13,344 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.
24
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 year ended October 31, 2005, CDSCs received by JH Funds amounted to $43,245 for Class B shares and $5,276 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 Class A, Class B and Class C shares transfer agent fee to 0.78% of each class’s average daily net asset value, at least until February 28, 2006. There were no transfer agent fee reductions under this limitation during the year ended October 31, 2005. Signature Services also agreed to voluntarily reduce the Fund’s asset-based portion of the transfer agent fee if the total transfer agent fee exceeds the Lipper, Inc. median transfer agency fee for comparable mutual funds by 0.05% . Accordingly, the transfer agent expense for Class A, Class B and Class C shares was reduced by $32,286 for the year ended October 31, 2005. Signature Services reserves the right to terminate this limitation at any time.
The Fund has an agreement with the Adviser to perform necessary tax, accounting and legal services for the Fund. The compensation for the year amounted to $24,876. The Fund also paid the adviser the amount of $392 for certain publishing services, included in the printing fees. The fund also paid the amount of $2,012 to JHLICo for certain compliance costs, included in the miscellaneous expenses.
Mr. James R. Boyle is an officer of certain affiliates of the Adviser, as well as affiliated Trustee of the Fund, and is compensated by the Adviser and/or its affiliates. The compensation of other 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.
25
Note C Fund share transactions |
This listing illustrates the number of Fund shares sold, reinvested and repurchased during the last two periods, along with the corresponding dollar value.
Year ended 10-31-04 | Year ended 10-31-05 | |||
Shares | Amount | Shares | Amount | |
Class A shares | ||||
Sold | 1,973,699 | $13,194,450 | 1,907,087 | $14,310,047 |
Distributions reinvested | -- | -- | 153,373 | 1,067,479 |
Repurchased | (2,637,147) | (17,370,134) | (2,248,267) | (16,706,148) |
Net decrease | (663,448) | ($4,175,684) | (187,807) | ($1,328,622) |
Class B shares | ||||
Sold | 1,369,403 | $8,533,931 | 735,091 | $5,111,257 |
Distributions reinvested | -- | -- | 71,179 | 459,815 |
Repurchased | (2,491,843) | (15,289,617) | (1,661,206) | (11,394,043) |
Net decrease | (1,122,440) | ($6,755,686) | (854,936) | ($5,822,971) |
Class C shares | ||||
Sold | 317,706 | $1,985,539 | 216,694 | $1,484,170 |
Distributions reinvested | -- | -- | 10,744 | 69,404 |
Repurchased | (254,252) | (1,557,702) | (291,681) | (1,993,970) |
Net increase (decrease) | 63,454 | $427,837 | (64,243) | ($440,396) |
Class I shares | ||||
Sold | 42,406 | $290,627 | 51,705 | $398,210 |
Distributions reinvested | -- | -- | 3,135 | 22,383 |
Repurchased | (28,340) | (190,677) | (71,242) | (534,814) |
Net increase (decrease) | 14,066 | $99,950 | (16,402) | ($114,221) |
Net decrease | (1,708,368) | ($10,403,583) | (1,123,388) | ($7,706,210) |
Note D Investment transactions |
The cost of investments owned on October 31, 2005, including short-term investments, for federal income tax purposes, was $91,771,434.
Gross unrealized appreciation and depreciation of investments aggregated $13,118,451 and $1,322,248, respectively, resulting in net unrealized appreciation of $11,796,203. 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.
26
Note E Transactions in securities of affiliated issuers |
Beginning | Ending | ||||
share | share | Realized | Dividend | Ending | |
Affiliate | amount | amount | gain | income | value |
Asustek Computer, Inc. | |||||
sold: 469,260 | 469,260 | -- | $345,764 | $12,985 | $-- |
Note F Reclassification of accounts |
Shareholder meeting (unaudited)
On December 1, 2004, a Special Meeting of shareholders of the Fund was held to elect nine Trustees effective January 1, 2005.
Proxies covering 10,166,622 shares of beneficial interest were voted at the meeting.
The shareholders elected the following Trustees to serve until their respective successors are duly elected and qualified, with the votes tabulated as follows:
W I T H H E L D | ||
F O R | A U T H O R I T Y | |
James F. Carlin | 9,776,216 | 390,406 |
Richard P. Chapman, Jr. | 9,796,179 | 370,443 |
William H. Cunningham | 9,763,608 | 403,014 |
Ronald R. Dion | 9,778,953 | 387,669 |
Charles L. Ladner | 9,790,396 | 376,226 |
Dr. John A. Moore | 9,796,412 | 370,210 |
Patti McGill Peterson | 9,758,408 | 408,214 |
Steven Pruchansky | 9,795,461 | 371,160 |
James A. Shepherdson* | 9,800,075 | 366,547 |
* Mr. James A. Shepherdson resigned effective July 15, 2005.
27
AUDITORS’ REPORT |
Report of Independent Registered Public Accounting Firm |
To the Board of Trustees and Shareholders of John Hancock International Fund, |
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of John Hancock International Fund (the “Fund”) at October 31, 2005, the results of its operations, the changes in its net assets and the financial highlights for the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at October 31, 2005 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP Boston, Massachusetts December 14, 2005 |
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TAX INFORMATION |
Unaudited
For federal income tax purposes, the following information is furnished with respect to the distributions of the Fund, if any, paid during its taxable year ended October 31, 2005.
The Fund hereby designates the maximum amount allowable of its net taxable income as qualified dividend income as provided in the Jobs and Growth Tax Relief Reconciliation Act of 2003. This amount will be reflected on Form 1099-DIV for the calendar year 2005.
Shareholders will be mailed a 2005 U.S. Treasury Department Form 1099-DIV in January 2006. This will reflect the total of all distributions that are taxable for calendar year 2005.
29
Board Consideration of and Continuation of Investment Advisory Agreement and Sub-Advisory Agreement: John Hancock International Fund |
At meetings held on May 19-20 and June 6-7, 2005, the Board, including the Independent Trustees, considered the factors and reached the conclusions described below relating to the selection of the Adviser and Sub-Adviser and the continuation of the Advisory Agreements. During such meetings, the Board’s Contracts/Operations Committee and the Independent Trustees also met in executive sessions with their independent legal counsel. In evaluating the Advisory Agreements, the Board, including the Contracts/Operations Committee and the Independent Trustees, reviewed a broad range of information requested for this purpose by the Independent Trustees, including but not limited to the following: (i) the investment performance of the Fund and a broader universe of relevant funds (the “Universe”) selected by Lipper Inc. (“Lipper”), an independent provider of investment company data, for a range of periods, (ii) advisory and other fees incurred by, and the expense ratios of, the Fund and a peer group of comparable funds selected by Lipper (the “Peer Group”), (iii) the advisory fees of comparable portfolios of other clients of the Adviser and the Sub-Adviser, (iv) the Adviser’s financial results and condition, including its and certain of its affiliates’ profitability from services performed for the Fund, (v) breakpoints in the Fund’s and the Peer Group’s fees and a study undertaken at the direction of the Independent Trustees as to the allocation of the benefits of economies of scale between the Fund and the Adviser, (vi) the Adviser’s and Sub-Adviser’s record of compliance with applicable laws and regulations, with the Fund’s investment policies and restrictions, and with the Fund’s Code of Ethics and the structure and responsibilities of the Adviser’s and Sub-Adviser’s compliance department, (vii) the background and experience of senior management and investment professionals, and (viii) the nature, cost and character of advisory and non-investment management services provided by the Adviser and its affiliates.
Nature, extent and quality of services
The Board considered the ability of the Adviser and the Sub-Adviser, based on their resources, reputation and other attributes, to attract and retain qualified investment professionals, including research, advisory, and supervisory personnel. The Board further considered the compliance programs and compliance records of the Adviser and Sub-Adviser. In addition, the Board took into account the administrative services provided to the Fund by the Adviser and its affiliates.
30
Based on the above factors, together with those referenced below, the Board concluded that, within the context of its full deliberations, the nature, extent and quality of the investment advisory services provided to the Fund by the Adviser and Sub-Adviser were sufficient to support renewal of the Advisory Agreements.
Fund performance
The Board considered the performance results for the Fund over various time periods. The Board also considered these results in comparison to the performance of the Universe, as well as the Fund’s benchmark indexes. Lipper determined the Universe for the Fund. The Board reviewed with a representative of Lipper the methodology used by Lipper to select the funds in the Universe and the Peer Group.
The Board noted that the performance of the Fund was lower than the median and average performance of its Universe and the performance of its benchmark indexes, the Lipper International Multi-Cap Growth Funds Index and the MSCI All Country World Ex-U.S. Index, for the time periods under review. The Adviser discussed with the Board measures that may be taken in the future with the objective of improving performance. The Board intends to continue to monitor the Fund’s performance trends to assess whether other remedial changes are warranted.
Investment advisory and sub-advisory fee rates and expenses |
The Board received and considered information regarding the Fund’s total operating expense ratio and its various components, including contractual advisory fees, actual advisory fees, non-management fees, Rule 12b-1 and non-Rule 12b-1 service fees, transfer agent fees and custodian fees, including and excluding Rule 12b-1 and non-Rule 12b-1 service fees. The Board also considered comparisons of these expenses to the expense information for the Peer Group and the Universe. The Board noted that the total operating expense ratio of the Fund was higher than the Peer Group’s and Universe’s median total operating expense ratio. The Board also noted that the most sig-nificant contributor to such difference was the Fund’s transfer agency expense, which the transfer agent has taken steps to reduce.
The Adviser also discussed the Lipper data and rankings, and other relevant information for the Fund. Based on the above-referenced considerations and other factors, the Board concluded that the plans to reduce the Fund’s overall fees and 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 sub-advisory fee rate (the “Sub-Advisory Agreement Rate”) payable by the Adviser to the Sub-Adviser for investment sub-advisory services. The Board concluded that the Sub-Advisory Agreement Rate was fair and equitable, based on its consideration of the factors described above.
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 Sub-Adviser. The Board concluded that, in light of the costs of providing investment
31
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.
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 the range of fee rates offered by the Sub-Adviser to their other clients, including other registered investment companies, institutional investors and separate accounts. The Board concluded that the Advisory Agreement Rate and the Sub-Advisory Agreement Rate were not unreasonable, taking into account fee rates offered to others by the Adviser and Sub-Adviser, respectively, and giving effect to differences in services covered by such fee rates.
Other benefits to the Adviser
The Board received and considered information regarding potential “fall-out” or ancillary benefits received by the Adviser and its affili-ates 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 finan-cial products offered by the Adviser and its affiliates).
The Board also considered the effectiveness of the Adviser’s, Sub-Adviser’s and Fund’s policies and procedures for complying with the requirements of the federal securities laws, including those relating to best execution of portfolio transactions and brokerage allocation.
The Board received information about the Sub-Adviser’s affiliation with the Adviser, which explained that the Sub-Adviser’s investment management arrangements with related-parties are conducted on an arm’s length basis so as to neither advantage nor disadvantage the Sub-Adviser’s clients or the related parties.
Other factors and broader review
As discussed above, the Board reviewed detailed materials received from the Adviser and Sub-Adviser as part of the annual re-approval process under Section 15(c) of the 1940 Act. The Board also regularly reviews and assesses the quality of the services that the Fund receives throughout the year. In this regard, the Board reviews reports of the Adviser at least quarterly, which include, among other things, a detailed portfolio review, detailed 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.
32
TRUSTEES & OFFICERS |
This chart provides information about the Trustees and Officers who oversee your John Hancock fund. Officers elected by the Trustees manage the day-to-day operations of the Fund and execute policies formulated by the Trustees.
Independent Trustees | ||
Name, age | Number of | |
Position(s) held with Fund | Trustee | John Hancock |
Principal occupation(s) and other | of Fund | funds overseen |
directorships during past 5 years | since1 | by Trustee |
Ronald R. Dion, Born: 1946 | 2005 | 53 |
Independent Chairman (since 2005); Chairman and Chief Executive Officer, | ||
R.M. Bradley & Co., Inc.; Director, The New England Council and Massachusetts | ||
Roundtable; Trustee, North Shore Medical Center; Director, Boston Stock | ||
Exchange; Director, BJ’s Wholesale Club, Inc. and a corporator of the Eastern | ||
Bank; Trustee, Emmanuel College; Director, Boston Municipal Research Bureau; | ||
Member of the Advisory Board, Carroll Graduate School of Management at | ||
Boston College. | ||
James F. Carlin, Born: 1940 | 2005 | 53 |
Director and Treasurer, Alpha Analytical Inc. (analytical laboratory) (since 1985); | ||
Part Owner and Treasurer, Lawrence Carlin Insurance Agency, Inc. (since 1995); | ||
Part Owner and Vice President, Mone Lawrence Carlin Insurance Agency, Inc. | ||
(since 1996); Director and Treasurer, Rizzo Associates (engineering) (until 2000); | ||
Chairman and CEO, Carlin Consolidated, Inc. (management/investments) (since | ||
1987); Director and Partner, Proctor Carlin & Co., Inc. (until 1999); Trustee, | ||
Massachusetts Health and Education Tax Exempt Trust (since 1993); Director of | ||
the following: Uno Restaurant Corp. (until 2001), Arbella Mutual (insurance) | ||
(until 2000), HealthPlan Services, Inc. (until 1999), Flagship Healthcare, Inc. (until | ||
1999), Carlin Insurance Agency, Inc. (until 1999); Chairman, Massachusetts | ||
Board of Higher Education (until 1999). | ||
Richard P. Chapman, Jr.,2 Born: 1935 | 1996 | 53 |
President and Chief Executive Officer, Brookline Bancorp Inc. (lending) | ||
(since 1972); Director, Lumber Insurance Co. (insurance) (until 2000); | ||
Chairman and Director, Northeast Retirement Services, Inc. (retirement | ||
administration) (since 1998). | ||
William H. Cunningham, Born: 1944 | 2005 | 143 |
Former Chancellor, University of Texas System and former President of the | ||
University of Texas, Austin, Texas; Chairman and CEO, IBT Technologies | ||
(until 2001); Director of the following: The University of Texas Investment | ||
Management Company (until 2000), Hire.com (until 2004), STC Broadcasting, | ||
Inc. and Sunrise Television Corp. (electronic manufacturing) (until 2001), | ||
Symtx, Inc. (electronic manufacturing) (since 2001), Adorno/Rogers Technology, | ||
Inc. (until 2004), Pinnacle Foods Corporation (until 2003), rateGenius (Internet |
33
Independent Trustees (continued) | ||
Name, age | Number of | |
Position(s) held with Fund | Trustee | John Hancock |
Principal occupation(s) and other | of Fund | funds overseen |
directorships during past 5 years | since1 | by Trustee |
William H. Cunningham, Born: 1944 (continued) | 2005 | 143 |
service) (until 2003), Jefferson-Pilot Corporation (diversified life insurance | ||
company) (since 1985), New Century Equity Holdings (formerly Billing Concepts) | ||
(until 2001), eCertain (until 2001), ClassMap.com (until 2001), Agile Ventures | ||
(until 2001), LBJ Foundation (until 2000), Golfsmith International, Inc. | ||
(until 2000), Metamor Worldwide (until 2000), AskRed.com (until 2001), | ||
Southwest Airlines (since 2000) and Introgen (since 2000); Advisory Director, | ||
Q Investments (until 2003); Advisory Director, Chase Bank (formerly Texas | ||
Commerce Bank - Austin) (since 1988), LIN Television (since 2002), WilTel | ||
Communications (until 2003) and Hayes Lemmerz International, Inc. | ||
(diversified automotive parts supply company) (since 2003). | ||
Charles L. Ladner,2 Born: 1938 | 2004 | 143 |
Chairman and Trustee, Dunwoody Village, Inc. (retirement services) (until 2003); | ||
Senior Vice President and Chief Financial Officer, UGI Corporation (public utility | ||
holding company) (retired 1998); Vice President and Director for AmeriGas, Inc. | ||
(retired 1998); Director of AmeriGas Partners, L.P. (until 1997) (gas distribution); | ||
Director, EnergyNorth, Inc. (until 1995); Director, Parks and History Association | ||
(since 2001). | ||
John A. Moore,2 Born: 1939 | 1994 | 53 |
President and Chief Executive Officer, Institute for Evaluating Health Risks, | ||
(nonprofit institution) (until 2001); Chief Scientist, Sciences International (health | ||
research) (until 2003); Principal, Hollyhouse (consulting) (since 2000); Director, | ||
CIIT (nonprofit research) (since 2002). | ||
Patti McGill Peterson,2 Born: 1943 | 1994 | 53 |
Executive Director, Council for International Exchange of Scholars and Vice | ||
President, Institute of International Education (since 1998); Senior Fellow, Cornell | ||
Institute of Public Affairs, Cornell University (until 1998); Former President of | ||
Wells College and St. Lawrence University; Director, Niagara Mohawk Power | ||
Corporation (until 2003); Director, Ford Foundation, International Fellowships | ||
Program (since 2002); Director, Lois Roth Endowment (since 2002); Director, | ||
Council for International Educational Exchange (since 2003). | ||
Steven R. Pruchansky, Born: 1944 | 2005 | 53 |
Chairman and Chief Executive Officer, Greenscapes of Southwest Florida, Inc. | ||
(since 2000); Director and President, Greenscapes of Southwest Florida, Inc. | ||
(until 2000); Managing Director, JonJames, LLC (real estate) (since 2001); | ||
Director, First Signature Bank & Trust Company (until 1991); Director, Mast | ||
Realty Trust (until 1994); President, Maxwell Building Corp. (until 1991). |
34
Non-Independent Trustee3 | ||
Name, age | Number of | |
Position(s) held with Fund | Trustee | John Hancock |
Principal occupation(s) and other | of Fund | funds overseen |
directorships during past 5 years | since1 | by Trustee |
James R. Boyle, Born: 1959 | 2005 | 237 |
President, John Hancock Annuities; Executive Vice President, John Hancock | ||
Life Insurance Company (since June, 2004); Chairman and Director, John | ||
Hancock Advisers, LLC (the “Adviser”); John Hancock Funds, LLC (“John | ||
Hancock Funds”) and The Berkeley Financial Group, LLC (“The Berkeley | ||
Group”) (holding company) (since 2005); President U.S. Annuities; Senior | ||
Vice President, The Manufacturers Life Insurance Company (U.S.A.) (prior | ||
to 2004). | ||
Principal officers who are not Trustees | ||
Name, age | ||
Position(s) held with Fund | Officer | |
Principal occupation(s) and | of Fund | |
directorships during past 5 years | since | |
Keith F. Hartstein, Born: 1956 | 2005 | |
President and Chief Executive Officer | ||
Senior Vice President, Manulife Financial Corporation (since 2004); Director, | ||
President and Chief Executive Officer, the Adviser and The Berkeley Group; | ||
Director, President and Chief Executive Officer, John Hancock Funds; Director, | ||
President and Chief Executive Officer, Sovereign Asset Management LLC | ||
(“Sovereign”); Director, John Hancock Signature Services, Inc.; President, John | ||
Hancock Trust; Chairman and President, NM Capital Management, Inc. (NM | ||
Capital) (since 2005); Chairman, Investment Company Institute Sales Force | ||
Marketing Committee (since 2003); Executive Vice President, John Hancock | ||
Funds (until 2005). | ||
William H. King, Born: 1952 | 1994 | |
Vice President and Treasurer | ||
Vice President and Assistant Treasurer, the Adviser; Vice President and Treasurer | ||
of each of the John Hancock funds advised by the Adviser; Assistant Treasurer | ||
of each of the John Hancock funds (until 2001). | ||
Francis V. Knox, Jr., Born: 1947 | 2005 | |
Vice President and Chief Compliance Officer | ||
Vice President and Chief Compliance Officer for John Hancock Investment | ||
Company, John Hancock Life Insurance Company (U.S.A.), John Hancock Life | ||
Insurance Company and John Hancock Funds (since 2005); Fidelity Investments - | ||
Vice President and Assistant Treasurer, Fidelity Group of Funds (until 2004); | ||
Fidelity Investments - Vice President and Ethics & Compliance Officer (until 2001). | ||
John G. Vrysen, Born: 1955 | 2005 | |
Executive Vice President and Chief Financial Officer; Director, the Adviser, | ||
The Berkeley Group and John Hancock Funds. | ||
Executive Vice President and Chief Financial Officer, the Adviser, Sovereign, | ||
The Berkeley Group and John Hancock Funds (since 2005); Vice President and | ||
General Manager, Fixed Annuities, U.S. Wealth Management (until 2005); Vice | ||
President, Operations, Manulife Wood Logan (July 2000 thru September 2004). |
35
Notes to Trustees and Officers pages |
The business address for all Trustees and Officers is 601 Congress Street, Boston, Massachusetts 02210-2805.
The Statement of Additional Information of the Fund includes additional information about members of the Board of Trustees of the Fund and is available, without charge, upon request, by calling 1-800-225-5291.
1 Each Trustee serves until resignation, retirement age or until his or her successor is elected.
2 Member of Audit Committee. |
3 Non-independent Trustees hold positions with the Fund’s investment adviser, underwriter and certain other affiliates.
36
For more information |
The Fund’s proxy voting policies, procedures and records are available without charge, upon request:
By phone |
1-800-225-5291 |
Investment adviser |
John Hancock Advisers, LLC |
601 Congress Street |
Boston, MA 02210-2805 |
Subadviser |
Nicholas-Applegate Capital |
Management, LLC |
600 West Broadway |
San Diego, CA 92101 |
Principal distributor |
John Hancock Funds, LLC |
601 Congress Street |
Boston, MA 02210-2805 |
On the Fund’s Web site |
www.jhfunds.com/proxy |
Custodian |
The Bank of New York |
One Wall Street |
New York, NY 10286 |
Transfer agent |
John Hancock Signature |
Services, Inc. |
1 John Hancock Way, |
Suite 1000 |
Boston, MA 02217-1000 |
On the SEC’s Web site |
www.sec.gov |
Legal counsel |
Wilmer Cutler Pickering |
Hale and Dorr LLP |
60 State Street |
Boston, MA 02109-1803 |
Independent registered |
public accounting firm |
PricewaterhouseCoopers LLP |
125 High Street |
Boston, MA 02110 |
The Fund’s investment objective, 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.
How to contact us | ||
Internet | www.jhfunds.com | |
Regular mail: | Express mail: | |
John Hancock | John Hancock | |
Signature Services, Inc. | Signature Services, Inc. | |
1 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 |
24-hour automated information | 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 Securities and Exchange Commission’s Web site, www.sec.gov.
37
![](https://capedge.com/proxy/N-CSR/0000928816-05-001652/x40x1if.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 International Fund. |
4000A 10/05 12/05 |
ITEM 2. CODE OF ETHICS.
As of the end of the period, October 31, 2005, 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.
The code of ethics was amended effective February 1, 2005 to address new Rule 204A-1 under the Investment Advisers Act of 1940 and to make other related changes.
The most significant amendments were:
(a) Broadening of the General Principles of the code to cover compliance with all federal securities laws.
(b) Eliminating the interim requirements (since the first quarter of 2004) for access persons to preclear their personal trades of John Hancock mutual funds. This was replaced by post-trade reporting and a 30 day hold requirement for all employees.
(c) A new requirement for “heightened preclearance” with investment supervisors by any access person trading in a personal position worth $100,000 or more.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Charles L. Ladner is the audit committee financial expert and is “independent”, pursuant to general instructions on Form N-CSR Item 3.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Audit Fees
The aggregate fees billed for professional services rendered by the principal accountant(s) for the audit of the registrant’s annual financial statements or services that are normally provided by the accountant(s) in connection with statutory and regulatory filings or engagements amounted to $96,900 for the fiscal year ended October 31, 2004 (broken out as follows: John Hancock International Fund - $36,100, John Hancock Large Cap Growth Fund - $34,100 and John Hancock Mid Cap Growth Fund - $26,700) and $82,470 for the fiscal year ended October 31, 2005 (broken out as follows: John Hancock International Fund - $37,890, John Hancock Mid Cap Growth Fund - $28,080 and John Hancock Greater China Opportunities Fund - $16,500). John Hancock Large Cap Growth Fund is no longer in existence effective April 8, 2005, it was acquired by John Hancock U.S. Global Leaders Fund. John Hancock Greater China Opportunities Fund is in its first year of operations, the fund commenced operations on June 8, 2005. These fees were billed to the registrant and were approved by the registrant’s audit committee.
(b) Audit-Related Services
There were no audit-related fees during the fiscal year ended October 31, 2004 and fiscal year ended October 31, 2005 billed to the registrant or to the registrant's investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant ("control affiliates").
(c) Tax Fees
The aggregate fees billed for professional services rendered by the principal accountant(s) for the tax compliance, tax advice and tax planning (“tax fees”) amounted to $10,300 for the fiscal year ended October 31, 2004 (broken out as follows: John Hancock International Fund - $3,700, John
Hancock Large Cap Growth Fund - $3,700 and John Hancock Mid Cap Growth Fund - $2,900) and $9,400 for the fiscal year ended October 31, 2005 (broken out as follows: John Hancock International Fund - $3,900, John Hancock Mid Cap Growth Fund - $3,000 and John Hancock Greater China Opportunities Fund - $2,500). The nature of the services comprising the tax fees was the review of the registrant’s income tax returns and tax distribution requirements. These fees were billed to the registrant and were approved by the registrant’s audit committee. There were no tax fees billed to the control affiliates.
(d) All Other Fees
There were no other fees during the fiscal year ended October 31, 2004 and fiscal year ended October 31, 2005 billed to the registrant or to the control affiliates.
(e)(1) See attachment "Approval of Audit, Audit-related, Tax and Other Services", with the audit committee pre-approval policies and procedures.
(e)(2) There were no fees that were approved by the audit committee pursuant to the de minimis exception for the fiscal years ended October 31, 2004 and October 31, 2005 on behalf of the registrant or on behalf of the control affiliates that relate directly to the operations and financial reporting of the registrant.
(f) According to the registrant’s principal accountant, for the fiscal year ended October 31, 2004, the percentage of hours spent on the audit of the registrant's financial statements for the most recent fiscal year that were attributed to work performed by persons who were not full-time, permanent employees of principal accountant was less than 50%.
(g) The aggregate non-audit fees billed by the registrant's accountant(s) for services rendered to the registrant and rendered to the registrant's control affiliates for each of the last two fiscal years of the registrant were $66,762 for the fiscal year ended October 31, 2004 and $212,062 for the fiscal year ended October 31, 2005.
(h) The audit committee of the registrant has considered the non-audit services provided by the registrant’s principal accountant(s) to the control affiliates and has determined that the services that were not pre-approved are compatible with maintaining the principal accountant(s)' independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
The registrant has a separately-designated standing audit committee comprised of independent trustees. The members of the audit committee are as follows:
Dr. John A. Moore - Chairman Richard P. Chapman, Jr. Charles L. Ladner Patti McGill Peterson ITEM 6. SCHEDULE OF INVESTMENTS. |
Not applicable. |
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable. |
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The registrant has adopted procedures by which shareholders August recommend nominees to the registrant's Board of Trustees. A copy of the procedures is filed as an exhibit to this Form N-CSR. See attached "John Hancock Funds - 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) Approval of Audit, Audit-related, Tax and Other Services is attached.
(c)(2) Submission of Matters to a Vote of Security Holders is attached. See attached "John Hancock Funds - Administration Committee Charter" and “John Hancock Funds – Governance Committee Charter”.
(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 Investment Trust III |
By: /s/ Keith F. Hartstein ------------------------------------- Keith F. Hartstein President and Chief Executive Officer Date: December 21, 2005 |
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: December 21, 2005 |
By: /s/ John G. Vrysen
-------------------------------------
John G. Vrysen
Executive Vice President and Chief Financial Officer
Date: December 21, 2005 |