2022-04-19MoneyMarketFund_ClassAC_StatPro_8122
Statement
of Additional Information
John
Hancock Current Interest
John
Hancock Funds III
John
Hancock Investment Trust
August 1,
2022
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A |
C |
I |
R2 |
R4 |
R5 |
R6 |
NAV |
1 |
John
Hancock Current Interest |
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John
Hancock Money Market Fund |
JHMXX |
JMCXX |
N/A |
N/A |
N/A |
N/A |
N/A |
N/A |
N/A |
John
Hancock Funds III |
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John
Hancock Disciplined Value Fund |
JVLAX |
JVLCX |
JVLIX |
JDVPX |
JDVFX |
JDVVX |
JDVWX |
JDVNX |
N/A |
John
Hancock Disciplined Value Mid Cap Fund |
JVMAX |
JVMCX |
JVMIX |
JVMSX |
JVMTX |
N/A |
JVMRX |
— |
N/A |
John
Hancock Global Shareholder Yield Fund |
JGYAX |
JGYCX |
JGYIX |
JGSRX |
N/A |
N/A |
JGRSX |
— |
N/A |
John
Hancock International Growth Fund |
GOIGX |
GONCX |
GOGIX |
JHIGX |
JIGIX |
N/A |
JIGTX |
JIGHX |
GOIOX |
John
Hancock U.S. Growth Fund |
JSGAX |
JSGCX |
JSGIX |
JSGRX |
JHSGX |
N/A |
JSGTX |
— |
N/A |
John
Hancock Investment Trust |
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John
Hancock Diversified Real Assets Fund |
N/A |
N/A |
N/A |
N/A |
N/A |
N/A |
N/A |
— |
N/A |
John
Hancock Fundamental Equity Income Fund |
— |
— |
JHFEX |
N/A |
N/A |
N/A |
— |
— |
N/A |
John
Hancock Mid Cap Growth Fund |
JACJX |
JACLX |
JACBX |
N/A |
N/A |
N/A |
JACEX |
JACFX |
N/A |
This
Statement of Additional Information (“SAI”) provides information about each fund
listed above (each a “fund” and collectively, the “funds”). Each fund is a
series of the Trust indicated above. The information in this SAI is in addition
to the information that is contained in each fund’s prospectus dated
August 1, 2022, as amended
and supplemented from time to time (collectively, the “Prospectus”).
The funds
may offer other share classes that are
described in separate prospectuses and SAIs.
This SAI is
not a prospectus. It should be read in conjunction with the Prospectus. This SAI
incorporates by reference the financial statements of each fund
(other than
Fundamental Equity Income Fund, which commenced operations on June 24,
2022) for the
period ended March 31, 2022, as well as
the related
opinion of the fund’s independent registered public accounting firm, as included
in the fund’s most recent annual report to shareholders (each an
“Annual Report”). The financial statements of each fund for the fiscal period
ended March 31, 2022 are
available through the link(s) in the following
table:
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Form
N-CSR filed May 19, 2022 for: John
Hancock Money Market Fund |
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Form
N-CSR filed May 19, 2022 for: John
Hancock Disciplined Value Fund John
Hancock Disciplined Value Mid Cap Fund John
Hancock Global Shareholder Yield Fund John
Hancock International Growth Fund John
Hancock U.S. Growth Fund |
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Form
N-CSR filed May 19, 2022 for: John
Hancock Diversified Real Assets Fund John
Hancock Mid Cap Growth Fund |
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A copy of a
Prospectus or an Annual Report can be obtained free of charge by
contacting:
John
Hancock Signature Services, Inc.
P.O. Box
219909
Kansas
City, MO 64121-9909
Manulife,
Manulife Investment Management, Stylized M Design, and Manulife Investment
Management & Stylized M Design are trademarks of The Manufacturers Life
Insurance
Company and are used by its affiliates under license.
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JH1031SAI |
800-225-5291
jhinvestments.com
GLOSSARY
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Term |
Definition |
“1933
Act” |
the
Securities Act of 1933, as amended |
“1940
Act” |
the
Investment Company Act of 1940, as amended |
“Advisers
Act” |
the
Investment Advisers Act of 1940, as amended |
“Advisor” |
John
Hancock Investment Management LLC (formerly, John Hancock Advisers,
LLC), 200 Berkeley Street, Boston, Massachusetts 02116 |
“Advisory
Agreement” |
an
investment advisory agreement or investment management contract
between
the Trust and the Advisor |
“Affiliated
Subadvisors” |
Manulife
Investment Management (North America) Limited and Manulife Investment
Management (US) LLC, as applicable |
“affiliated
underlying funds” |
underlying
funds that are advised by John Hancock’s investment advisor or
its
affiliates |
“BDCs” |
business
development companies |
“Board” |
Board
of Trustees of the Trust |
“Bond
Connect” |
Mutual
Bond Market Access between Mainland China and Hong Kong |
“Brown
Brothers Harriman” |
Brown
Brothers Harriman & Co. |
“CATS” |
Certificates
of Accrual on Treasury Securities |
“CBOs” |
Collateralized
Bond Obligations |
“CCO” |
Chief
Compliance Officer |
“CDSC” |
Contingent
Deferred Sales Charge |
“CEA” |
the
Commodity Exchange Act, as amended |
“China
A-Shares” |
Chinese
stock exchanges |
“CIBM” |
China
interbank bond market |
“CLOs” |
Collateralized
Loan Obligations |
“CMOs” |
Collateralized
Mortgage Obligations |
“Code” |
the
Internal Revenue Code of 1986, as amended |
“COFI
floaters” |
Cost
of Funds Index |
“CPI” |
Consumer
Price Index |
“CPI-U” |
Consumer
Price Index for Urban Consumers |
“CPO” |
Commodity
Pool Operator |
“CFTC” |
Commodity
Futures Trading Commission |
“Citibank” |
Citibank,
N.A., 388 Greenwich Street, New York, NY 10013 |
“Distributor” |
John
Hancock Investment Management Distributors LLC (formerly, John
Hancock
Funds, LLC), 200 Berkeley Street, Boston, Massachusetts
02116 |
“EMU” |
Economic
and Monetary Union |
“ETFs” |
Exchange-Traded
Funds |
“ETNs” |
Exchange-Traded
Notes |
“EU” |
European
Union |
“Fannie
Mae” |
Federal
National Mortgage Association |
“FHFA” |
Federal
Housing Finance Agency |
“FHLBs” |
Federal
Home Loan Banks |
“FICBs” |
Federal
Intermediate Credit Banks |
“Fitch” |
Fitch
Ratings |
“Freddie
Mac” |
Federal
Home Loan Mortgage Corporation |
“funds”
or “series” |
The
John Hancock funds within this SAI as noted on the front cover and as
the
context may require |
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Term |
Definition |
“GNMA” |
Government
National Mortgage Association |
“HKSCC” |
Hong
Kong Securities Clearing Company |
“IOs” |
Interest-Only |
“IRA” |
Individual
Retirement Account |
“IRS” |
Internal
Revenue Service |
“JHCT” |
John
Hancock Collateral Trust |
“JH
Distributors” |
John
Hancock Distributors, LLC |
“JHLICO
New York” |
John
Hancock Life Insurance Company of New York |
“JHLICO
U.S.A.” |
John
Hancock Life Insurance Company (U.S.A.) |
“LOI” |
Letter
of Intention |
“LIBOR” |
London
Interbank Offered Rate |
“MAAP” |
Monthly
Automatic Accumulation Program |
“Manulife
Financial” or “MFC” |
Manulife
Financial, a publicly traded company based in Toronto,
Canada |
“Manulife
IM (NA)” |
Manulife
Investment Management (North America) Limited (formerly, John Hancock
Asset Management a Division of Manulife Asset Management (North
America) Limited) |
“Manulife
IM (US)” |
Manulife
Investment Management (US) LLC (formerly, John Hancock Asset Management
a Division of Manulife Asset Management (US) LLC) |
“MiFID
II” |
Markets
in Financial Instruments Directive |
“Moody’s” |
Moody’s
Investors Service, Inc |
“NAV” |
Net
Asset Value |
“NRSRO” |
Nationally
Recognized Statistical Rating Organization |
“NYSE” |
New
York Stock Exchange |
“OID” |
Original
Issue Discount |
“OTC” |
Over-The-Counter |
“PAC” |
Planned
Amortization Class |
“PFS” |
Personal
Financial Services |
“POs” |
Principal-Only |
“PRC” |
People’s
Republic of China |
“REITs” |
Real
Estate Investment Trusts |
“RIC” |
Regulated
Investment Company |
“RPS” |
John
Hancock Retirement Plan Services |
“SARSEP” |
Salary
Reduction Simplified Employee Pension Plan |
“SEC” |
Securities
and Exchange Commission |
“SEP” |
Simplified
Employee Pension |
“SIMPLE” |
Savings
Incentive Match Plan for Employees |
“S&P” |
S&P
Global Ratings |
“SLMA” |
Student
Loan Marketing Association |
“SPACs” |
Special
Purpose Acquisition Companies |
“State
Street” |
State
Street Bank and Trust Company,
State Street Financial Center, One Lincoln
Street, Boston, Massachusetts 02111 |
“Stock
Connect” |
Hong
Kong Stock Connect Program |
“subadvisor” |
Any
subadvisors employed by John Hancock within this SAI as noted in
Appendix
B and as the context may require |
“TAC” |
Target
Amortization Class |
“TIGRs” |
Treasury
Receipts, Treasury Investors Growth
Receipts |
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Term |
Definition |
“Trust” |
John
Hancock Bond Trust John
Hancock California Tax-Free Income Fund John
Hancock Capital Series John
Hancock Current Interest John
Hancock Exchange-Traded Fund Trust John
Hancock Funds II John
Hancock Funds III John
Hancock Investment Trust John
Hancock Investment Trust II John
Hancock Municipal Securities Trust John
Hancock Sovereign Bond Fund John
Hancock Strategic Series John
Hancock Variable Insurance Trust |
“TSA” |
Tax-Sheltered
Annuity |
“unaffiliated
underlying funds” |
underlying
funds that are advised by an entity other than John Hancock’s investment
advisor or its affiliates |
“underlying
funds” |
funds
in which the funds of funds invest |
“UK” |
United
Kingdom |
ORGANIZATION
OF THE TRUSTS
Each Trust
is organized as a Massachusetts business trust under the laws of The
Commonwealth of Massachusetts and is an open-end management investment
company registered under the 1940 Act.
U.S. Growth
Fund is a non-diversified series of its respective Trust and each other fund is
a diversified
series of its respective Trust, as those terms are used in the 1940 Act, and as
interpreted or modified by regulatory authority having jurisdiction,
from time to time. The
following table sets forth the date each Trust was organized:
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Trust |
Date
of Organization |
John
Hancock Current Interest |
October
8, 1991 |
John
Hancock Funds III |
June
10, 2005 |
John
Hancock Investment Trust |
December
21, 1984 |
The Advisor
is a Delaware limited liability company whose principal offices are located at
200 Berkeley Street, Boston, Massachusetts 02116. The Advisor is
registered as an investment advisor under the Advisers Act. The Advisor is an
indirect principally owned subsidiary of JHLICO U.S.A. JHLICO U.S.A. and
its subsidiaries today offer a broad range of financial products, including life
insurance, annuities, 401(k) plans, long-term care insurance, college
savings, and other forms of business insurance. Additional information about
John Hancock may be found on the Internet at johnhancock.com. The
ultimate controlling parent of the Advisor is MFC, a publicly traded company
based in Toronto, Canada. MFC is the holding company of The Manufacturers
Life Insurance Company and its subsidiaries, collectively known as Manulife
Financial.
The Advisor
has retained for each fund a subadvisor that is responsible for providing
investment advice to the fund subject to the review of the Board and the
overall supervision of the Advisor.
Manulife
Financial is a leading international financial services group with principal
operations in Asia, Canada, and the United States. Operating primarily
as John Hancock in the United States and Manulife elsewhere, it provides
financial protection products and advice, insurance, as well as wealth and
asset management services through its extensive network of solutions for
individuals, groups, and institutions. Its global
headquarters are in Toronto,
Canada, and it trades as ‘MFC’ on the Toronto Stock Exchange, NYSE, and the
Philippine Stock Exchange, and under ‘945’ in Hong Kong. Manulife
Financial can be found on the Internet at manulife.com.
The
following table sets forth each fund’s inception date:
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Fund |
Commencement
of Operations |
Disciplined
Value Fund |
January
2, 1997 (predecessor fund inception date; became a series of the
Trust
on December 19, 2008) |
Disciplined
Value Mid Cap Fund |
June
2, 1997 (predecessor fund inception date; became a series of the
Trust
on July 12, 2010) |
Diversified
Real Assets Fund |
February
26, 2018 |
Fundamental
Equity Income Fund |
June
24, 2022 |
Global
Shareholder Yield Fund |
March
1, 2007 |
International
Growth Fund |
June
12, 2006 |
Mid
Cap Growth Fund |
October
17, 2005 (predecessor fund inception date; became a series of the
Trust on October 18, 2021) |
Money
Market Fund |
December
22, 1994 |
U.S.
Growth Fund |
December
20, 2011 |
If a fund
or share
class has been
in operation for a period that is shorter than the three-year fiscal period
covered in this SAI, information is provided for the period
the fund or share
class, as applicable, was in
operation.
ADDITIONAL
INVESTMENT POLICIES AND OTHER INSTRUMENTS
The
principal strategies and risks of investing in each fund are described in the
applicable Prospectus. Unless otherwise stated in the applicable Prospectus
or this SAI, the investment objective and policies of the funds may be changed
without shareholder approval. Each fund may invest in the instruments
below, and such instruments and investment policies apply to each fund, but only
if and to the extent that such policies are consistent with and
permitted by a fund’s investment objective and policies. Each fund may also have
indirect exposure to the instruments described below through
derivative contracts, if applicable. By owning shares of the underlying funds,
each fund of funds indirectly invests in the securities and instruments
held by the underlying funds and bears the same risks of such underlying
funds.
As
described more fully in its Prospectus, Money Market Fund operates as a
“government money market fund” in accordance with Rule 2a-7 under the
1940 Act
and, under normal market conditions, invests at least 99.5% of its total assets
in cash, U.S. government securities, and/or repurchase agreements
that are fully collateralized by U.S. government securities or cash. As a
fundamental policy, Money Market Fund may not invest more than 25% of its
total assets in obligations issued by: (i) foreign banks; and (ii) foreign
branches of U.S. banks where the subadvisor has determined that the
U.S. bank
is not unconditionally responsible for the payment obligations of the foreign
branch. This investment limitation is fundamental and may only be changed
with shareholder approval.
Asset-Backed
Securities
The
securitization techniques used to develop mortgage securities also are being
applied to a broad range of other assets. Through the use of trusts and special
purpose corporations, automobile and credit card receivables are being
securitized in pass-through structures similar to mortgage pass-through
structures or in a pay-through structure similar to the CMO
structure.
Generally,
the issuers of asset-backed bonds, notes or pass-through certificates are
special purpose entities and do not have any significant assets other than
the receivables securing such obligations. In general, the collateral supporting
asset-backed securities is of a shorter maturity than that of mortgage
loans. As a result, investment in these securities should be subject to less
volatility than mortgage securities. Instruments backed by pools of
receivables are similar to mortgage-backed securities in that they are subject
to unscheduled prepayments of principal prior to maturity. When the obligations
are prepaid, a fund must reinvest the prepaid amounts in securities with the
prevailing interest rates at the time. Therefore, a fund’s ability to maintain
an investment including high-yielding asset-backed securities will be affected
adversely to the extent that prepayments of principal must be
reinvested in securities that have lower yields than the prepaid obligations.
Moreover, prepayments of securities purchased at a premium could result in a
realized loss. Unless
otherwise stated in its Prospectus, a fund will only invest in asset-backed
securities rated, at the time of purchase, “AA” or better
by S&P or Fitch or “Aa” or better by Moody’s.
As with
mortgage securities, asset-backed securities are often backed by a pool of
assets representing the obligation of a number of different parties and use
similar credit enhancement techniques. For a description of the types of credit
enhancement that may accompany asset-backed securities, see “Types
of Credit Support” below. When a fund invests in asset-backed securities, it
will not limit its investments in asset-backed securities to those with credit
enhancements. Although asset-backed securities are not generally traded on a
national securities exchange, such securities are widely traded by
brokers and dealers, and will not be considered illiquid securities for the
purposes of the investment restriction on illiquid securities under the
sub-section “Illiquid Securities” in this section below.
Types of
Credit Support. To lessen
the impact of an obligor’s failure to make payments on underlying assets,
mortgage securities and asset-backed securities
may contain elements of credit support. Such credit support falls into two
categories:
• |
liquidity
protection; and |
Liquidity
protection refers to the provision of advances, generally by the entity
administering the pool of assets, to ensure that the pass-through of
payments
due on the underlying pool of assets occurs in a timely fashion. Default
protection provides protection against losses resulting from ultimate
default and
enhances the likelihood of ultimate payment of the obligations on at least a
portion of the assets in the pool. This protection may be provided
through guarantees, insurance policies or letters of credit obtained by the
issuer or sponsor from third parties, through various means of structuring
the transaction or through a combination of such approaches. A fund will not pay
any additional fees for such credit support, although the existence
of credit support may increase the price of a security.
Some
examples of credit support include:
• |
“senior-subordinated
securities” (multiple class securities with one or more classes
subordinate to other classes as to the payment of principal thereof
and interest thereon, with the result that defaults on the underlying
assets are borne first by the holders of the subordinated
class); |
• |
creation
of “reserve funds” (where cash or investments, sometimes funded from a
portion of the payments on the underlying assets, are held in reserve
against future losses); and |
• |
“over-collateralization”
(where the scheduled payments on, or the principal amount of, the
underlying assets exceed those required to make payment
on the securities and pay any servicing or other
fees). |
The ratings
of mortgage-backed securities and asset-backed securities for which third-party
credit enhancement provides liquidity protection or default
protection are generally dependent upon the continued creditworthiness of the
provider of the credit enhancement. The ratings of these securities
could be reduced in the event of deterioration in the creditworthiness of the
credit enhancement provider even in cases where the delinquency
and loss experienced on the underlying pool of assets is better than
expected.
The degree
of credit support provided for each issue is generally based on historical
information concerning the level of credit risk associated with the underlying
assets. Delinquency or loss greater than anticipated could adversely affect the
return on an investment in mortgage securities or asset-backed
securities.
Collateralized
Debt Obligations. CBOs,
CLOs, other collateralized debt obligations, and other similarly structured
securities (collectively, “CDOs”) are types
of asset-backed securities. A CBO is a trust that is often backed by a
diversified pool of high risk, below investment grade fixed-income securities.
The collateral can be from many different types of fixed-income securities such
as high yield debt, residential privately issued mortgage-related
securities, commercial privately issued mortgage-related securities, trust
preferred securities and emerging market debt. A CLO is a trust typically
collateralized by a pool of loans, which may include, among others, domestic and
foreign senior secured loans, senior unsecured loans, and subordinate
corporate loans, including loans that may be rated below investment grade or
equivalent unrated loans. Other CDOs are trusts backed by other types
of assets representing obligations of various parties. CDOs may charge
management fees and administrative expenses.
In a CDO
structure, the cash flows from the trust are split into two or more portions,
called tranches, varying in risk and yield. The riskiest portion is the
“equity”
tranche which bears the bulk of defaults from the bonds or loans in the trust
and serves to protect the other, more senior tranches from
default in
all but the most severe circumstances. Since it is partially protected from
defaults, a senior tranche from a CDO trust typically has a higher rating and
lower yield than its underlying securities, and can be rated investment grade.
Despite the protection from the equity tranche, CDO tranches can
experience substantial losses due to actual defaults, increased sensitivity to
defaults due to collateral default and disappearance of protecting tranches,
market anticipation of defaults, as well as aversion to CDO securities as a
class. In the case of all CDO tranches, the market prices of and yields on
tranches with longer terms to maturity tend to be more volatile than those of
tranches with shorter terms to maturity due to the greater volatility
and uncertainty of cash flows.
Brady
Bonds
Brady Bonds
are debt securities issued under the framework of the “Brady Plan,” an
initiative announced by former U.S. Treasury Secretary Nicholas F. Brady in
1989 as a mechanism for debtor nations to restructure their outstanding external
commercial bank indebtedness. The Brady Plan framework,
as it has developed, involves the exchange of external commercial bank debt for
newly issued bonds (“Brady Bonds”). Brady Bonds also may be
issued in respect of new money being advanced by existing lenders in connection
with the debt restructuring. Brady Bonds issued to date generally
have maturities between 15 and 30 years from the date of issuance and have
traded at a deep discount from their face value. In addition to Brady
Bonds, investments in emerging market governmental obligations issued as a
result of debt restructuring agreements outside of the scope of the Brady
Plan are available.
Agreements
implemented under the Brady Plan to date are designed to achieve debt and
debt-service reduction through specific options negotiated by a debtor
nation with its creditors. As a result, the financial packages offered by each
country differ. The types of options have included:
• |
the
exchange of outstanding commercial bank debt for bonds issued at 100% of
face value that carry a below-market stated rate of interest (generally
known as par bonds); |
• |
bonds
issued at a discount from face value (generally known as discount
bonds); |
• |
bonds
bearing an interest rate which increases over time;
and |
• |
bonds
issued in exchange for the advancement of new money by existing
lenders. |
Discount
bonds issued to date under the framework of the Brady Plan have generally borne
interest computed semiannually at a rate equal to 13/16th of one
percent above current six-month LIBOR. Regardless of the stated face amount and
interest rate of the various types of Brady Bonds, when investing
in Brady Bonds, a fund will purchase Brady Bonds in secondary markets in which
the price and yield to the investor reflect market conditions at the time
of purchase.
Certain
sovereign bonds are entitled to “value recovery payments” in certain
circumstances, which in effect constitute supplemental interest payments
but
generally are not collateralized. Certain Brady Bonds have been collateralized
as to principal due at maturity (typically 15 to 30 years from the date of
issuance) by U.S. Treasury zero coupon bonds with a maturity equal to the final
maturity of such Brady Bonds, although the collateral is not available
to investors until the final maturity of the Brady Bonds. Collateral purchases
are financed by the International Monetary Fund (the “IMF”), the World Bank
and the debtor nations’ reserves. In addition, interest payments on certain
types of Brady Bonds may be collateralized by cash or high-grade
securities in amounts that typically represent between 12 and 18 months of
interest accruals on these instruments, with the balance of the interest
accruals being uncollateralized.
A fund may
purchase Brady Bonds with no or limited collateralization, and must rely for
payment of interest and (except in the case of principal collateralized
Brady Bonds) principal primarily on the willingness and ability of the foreign
government to make payment in accordance with the terms of the
Brady Bonds.
Brady Bonds
issued to date are purchased and sold in secondary markets through U.S.
securities dealers and other financial institutions and are generally
maintained through European transactional securities depositories. A substantial
portion of the Brady Bonds and other sovereign debt securities
in which a fund invests are likely to be acquired at a discount.
Canadian
and Provincial Government and Crown Agency Obligations
Canadian
Government Obligations. Canadian
government obligations are debt securities issued or guaranteed as to principal
or interest by the government
of Canada pursuant to authority granted by the Parliament of Canada and approved
by the Governor in Council, where necessary. These securities
include treasury bills, notes, bonds, debentures and marketable government of
Canada loans.
Canadian
Crown Obligations. Canadian
Crown agency obligations are debt securities issued or guaranteed by a Crown
corporation, company or agency
(“Crown Agencies”) pursuant to authority granted by the Parliament of Canada and
approved by the Governor in Council, where necessary. Certain
Crown Agencies are by statute agents of Her Majesty in right of Canada, and
their obligations, when properly authorized, constitute direct obligations
of the government of Canada. These obligations include, but are not limited to,
those issued or guaranteed by the:
• |
Export
Development Corporation; |
• |
Farm
Credit Corporation; |
• |
Federal
Business Development Bank; and |
• |
Canada
Post Corporation. |
In
addition, certain Crown Agencies that are not, by law, agents of Her Majesty may
issue obligations that, by statute, the Governor in Council may authorize
the Minister of Finance to guarantee on behalf of the government of Canada.
Other Crown Agencies that are not, by law, agents of Her Majesty may
issue or guarantee obligations not entitled to be guaranteed by the government
of Canada. No assurance can be given that the
government
of Canada will support the obligations of Crown Agencies that are not agents of
Her Majesty, which it has not guaranteed, since it is not obligated
to do so by law.
Provincial
Government Obligations. Provincial
Government obligations are debt securities issued or guaranteed as to principal
or interest by the government
of any province of Canada pursuant to authority granted by the provincial
Legislature and approved by the Lieutenant Governor in Council of such
province, where necessary. These securities include treasury bills, notes, bonds
and debentures.
Provincial
Crown Agency Obligations. Provincial
Crown Agency obligations are debt securities issued or guaranteed by a
provincial Crown corporation,
company or agency (“Provincial Crown Agencies”) pursuant to authority granted by
the provincial Legislature and approved by the Lieutenant
Governor in Council of such province, where necessary. Certain Provincial Crown
Agencies are by statute agents of Her Majesty in right of a particular
province of Canada, and their obligations, when properly authorized, constitute
direct obligations of such province. Other Provincial Crown Agencies
that are not, by law, agents of Her Majesty in right of a particular province of
Canada may issue obligations that, by statute, the Lieutenant Governor in
Council of such province may guarantee, or may authorize the Treasurer thereof
to guarantee, on behalf of the government of such province.
Finally, other Provincial Crown Agencies that are not, by law, agencies of Her
Majesty may issue or guarantee obligations not entitled to be guaranteed
by a provincial government. No assurance can be given that the government of any
province of Canada will support the obligations of Provincial
Crown Agencies that are not agents of Her Majesty and that it has not
guaranteed, as it is not obligated to do so by law. Provincial Crown
Agency
obligations described above include, but are not limited to, those issued or
guaranteed by a:
• |
provincial
railway corporation; |
• |
provincial
hydroelectric or power commission or
authority; |
• |
provincial
municipal financing corporation or agency;
and |
• |
provincial
telephone commission or authority. |
Certificates
of Deposit, Time Deposits and Bankers’ Acceptances
Certificates
of Deposit.
Certificates of deposit are certificates issued against funds deposited in a
bank or a savings and loan. They are issued for a definite
period of time and earn a specified rate of return.
Time
Deposits. Time
deposits are non-negotiable deposits maintained in banking institutions for
specified periods of time at stated interest rates.
Bankers’
Acceptances. Bankers’
acceptances are short-term credit instruments evidencing the obligation of a
bank to pay a draft which has been drawn on it
by a customer. These instruments reflect the obligations both of the bank and of
the drawer to pay the face amount of the instrument upon maturity.
They are primarily used to finance the import, export, transfer or storage of
goods. They are “accepted” when a bank guarantees their payment at
maturity.
These
obligations are not insured by the Federal Deposit Insurance
Corporation.
Commercial
Paper and Short-Term Notes
Commercial
paper consists of unsecured promissory notes issued by corporations. Issues of
commercial paper and short-term notes will normally have
maturities of less than nine months and fixed rates of return, although such
instruments may have maturities of up to one year.
Variable
Amount Master Demand Notes.
Commercial paper obligations may include variable amount master demand notes.
Variable amount master
demand notes are obligations that permit the investment of fluctuating amounts
at varying rates of interest pursuant to direct arrangements between a
fund, as lender, and the borrower. These notes permit daily changes in the
amounts borrowed. The investing (i.e., “lending”) fund has the right to
increase the amount under the note at any time up to the full amount provided by
the note agreement, or to decrease the amount, and the borrower
may prepay up to the full amount of the note without penalty. Because variable
amount master demand notes are direct lending arrangements
between the lender and borrower, it is not generally contemplated that such
instruments will be traded. There is no secondary market for these
notes, although they are redeemable (and thus immediately repayable by the
borrower) at face value, plus accrued interest, at any time.
A subadvisor
will only invest in variable amount master demand notes issued by companies
that, at the date of investment, have an outstanding debt issue rated
“Aaa” or “Aa” by Moody’s or “AAA” or “AA” by S&P or Fitch, and that the
subadvisor has determined present minimal risk of loss. A subadvisor
will look generally at the financial strength of the issuing company as
“backing” for the note and not to any security interest or supplemental
source, such as a bank letter of credit. A variable amount master demand note
will be valued on each day a NAV is determined. The NAV generally
will be equal to the face value of the note plus accrued interest unless the
financial position of the issuer is such that its ability to repay the
note when
due is in question.
Conversion
of Debt Securities
In the
event debt securities held by a fund are converted to or exchanged for equity
securities, the fund may continue to hold such equity securities, but only if
and to the extent consistent with and permitted by its investment objective and
policies.
Convertible
Securities
Convertible
securities may include corporate notes or preferred securities. Investments in
convertible securities are not subject to the rating criteria with
respect to non-convertible debt obligations. As with all debt securities, the
market value of convertible securities tends to decline as interest rates
increase
and, conversely, to increase as interest rates decline. The market value of
convertible securities can also be heavily dependent upon the changing
value of the equity securities into which such securities are convertible,
depending on whether the market price of the underlying security exceeds the
conversion price. Convertible securities generally rank senior to common stocks
in an issuer’s capital structure and consequently entail
less risk
than the issuer’s common stock. However, the extent to which such risk is
reduced depends upon the degree to which the convertible security sells above
its value as a fixed-income security.
Corporate
Obligations
Corporate
obligations are bonds and notes issued by corporations to finance long-term
credit needs.
Custodial
Receipts
A fund may
acquire custodial receipts for U.S. government securities. Custodial receipts
evidence ownership of future interest payments, principal payments or
both, and include TIGRs, and CATS. For certain securities law purposes,
custodial receipts are not considered U.S. government securities.
Depositary
Receipts
Securities
of foreign issuers may include American Depositary Receipts, European Depositary
Receipts, Global Depositary Receipts, International Depositary
Receipts, and Non-Voting Depositary Receipts (“ADRs,” “EDRs,” “GDRs,” “IDRs,”
and “NVDRs,” respectively, and collectively, “Depositary Receipts”).
Depositary Receipts are certificates typically issued by a bank or trust company
that give their holders the right to receive securities issued by a
foreign or domestic corporation.
ADRs are
U.S. dollar-denominated securities backed by foreign securities deposited in a
U.S. securities depository. ADRs are created for trading in the U.S.
markets. The value of an ADR will fluctuate with the value of the underlying
security and will reflect any changes in exchange rates. An investment
in ADRs
involves risks associated with investing in foreign securities. Issuers of
unsponsored ADRs are not contractually obligated to disclose material
information
in the United States, and, therefore, there may not be a correlation between
that information and the market value of an unsponsored ADR.
EDRs, GDRs,
IDRs, and NVDRs are receipts evidencing an arrangement with a foreign bank or
exchange affiliate similar to that for ADRs and are designed
for use in foreign securities markets. EDRs, GDRs, IDRs, and NVDRs are not
necessarily quoted in the same currency as the underlying security.
NVDRs do not have voting rights.
Exchange-Traded
Notes
ETNs are
senior, unsecured, unsubordinated debt securities the returns of which are
linked to the performance of a particular market benchmark or strategy,
minus applicable fees. ETNs are traded on an exchange (e.g., the NYSE) during
normal trading hours; however, investors also can hold ETNs until they
mature. At maturity, the issuer pays to the investor a cash amount equal to the
principal amount, subject to the day’s market benchmark or strategy
factor. ETNs do not make periodic coupon payments or provide principal
protection. ETNs are subject to credit risk, including the credit risk
of the
issuer, and the value of the ETN may drop due to a downgrade in the issuer’s
credit rating, despite the underlying market benchmark or strategy remaining
unchanged. The value of an ETN also may be influenced by time to maturity, level
of supply and demand for the ETN, volatility and lack of liquidity
in underlying assets, changes in the applicable interest rates, changes in the
issuer’s credit rating, and economic, legal, political, or geographic
events that affect the referenced underlying asset. When a fund invests in ETNs,
it will bear its proportionate share of any fees and expenses
borne by the ETN. A decision by a fund to sell ETN holdings may be limited by
the availability of a secondary market. In addition, although an ETN may be
listed on an exchange, the issuer may not be required to maintain the listing,
and there can be no assurance that a secondary market will exist for
an ETN.
ETNs also
are subject to tax risk. No assurance can be given that the IRS will accept, or
a court will uphold, how a fund characterizes and treats ETNs for tax
purposes.
An ETN that
is tied to a specific market benchmark or strategy may not be able to replicate
and maintain exactly the composition and relative weighting
of securities, commodities or other components in the applicable market
benchmark or strategy. Some ETNs that use leverage can, at times, be
relatively illiquid, and thus they may be difficult to purchase or sell at a
fair price. Leveraged ETNs are subject to the same risk as other instruments
that use leverage in any form. The market value of ETNs may differ from their
market benchmark or strategy. This difference in price may be due to
the fact that the supply and demand in the market for ETNs at any point in time
is not always identical to the supply and demand in the market for
the securities, commodities or other components underlying the market benchmark
or strategy that the ETN seeks to track. As a result, there may
be times when an ETN trades at a premium or discount to its market benchmark or
strategy.
Fixed-Income
Securities
Investment
grade bonds are rated at the time of purchase in the four highest rating
categories by a NRSRO, such as those rated “Aaa,” “Aa,” “A” and “Baa” by
Moody’s, or “AAA,” “AA,” “A” and “BBB” by S&P or Fitch. Obligations rated in
the lowest of the top four rating categories (such as “Baa” by Moody’s or
“BBB” by S&P or Fitch) may have speculative characteristics and changes in
economic conditions or other circumstances are more likely to lead to a
weakened capacity to make principal and interest payments, including a greater
possibility of default or bankruptcy of the issuer, than is the case with
higher grade bonds. Subsequent to its purchase by a fund, an issue of securities
may cease to be rated or its rating may be reduced below the minimum
required for purchase by a fund. In addition, it is possible that Moody’s,
S&P, Fitch and other NRSROs might not timely change their ratings of
a particular issue to reflect subsequent events. None of these events will
require the sale of the securities by a fund, although a subadvisor will
consider these events in determining whether it should continue to hold the
securities.
In general,
the ratings of Moody’s, S&P, and Fitch represent the opinions of these
agencies as to the quality of the securities that they rate. It should be
emphasized
however, that ratings are relative and subjective and are not absolute standards
of quality. These ratings will be used by a fund as initial criteria
for the selection of portfolio securities. Among the factors that will be
considered are the long-term ability of the issuer to pay principal and
interest
and general economic trends. Appendix A contains further information concerning
the ratings of Moody’s, S&P, and Fitch and their significance.
Foreign
Government Securities
Foreign
government securities include securities issued or guaranteed by foreign
governments (including political subdivisions) or their authorities,
agencies,
or instrumentalities or by supra-national agencies. Different kinds of foreign
government securities have different kinds of government support.
For example, some foreign government securities are supported by the full faith
and credit of a foreign national government or political subdivision
and some are not. Foreign government securities of some countries may involve
varying degrees of credit risk as a result of financial or political
instability in those countries and the possible inability of a fund to enforce
its rights against the foreign government issuer. As with other fixed
income
securities, sovereign issuers may be unable or unwilling to make timely
principal or interest payments. Supra-national agencies are agencies
whose
member nations make capital contributions to support the agencies’
activities.
High
Yield (High Risk) Domestic Corporate Debt Securities
High yield
corporate debt securities (also known as “junk bonds”) include bonds,
debentures, notes, bank loans, credit-linked notes and commercial paper. Most
of these debt securities will bear interest at fixed rates, except bank loans,
which usually have floating rates. Bonds also may have variable rates of
interest, and debt securities may involve equity features, such as equity
warrants or convertible outright and participation features (i.e., interest or
other payments, often in addition to a fixed rate of return, that are based on
the borrower’s attainment of specified levels of revenues, sales or profits
and thus enable the holder of the security to share in the potential success of
the venture). Today, much high yield debt is used for general corporate
purposes, such as financing capital needs or consolidating and paying down bank
lines of credit.
The
secondary market for high yield U.S. corporate debt securities is concentrated
in relatively few market makers and is dominated by institutional investors,
including funds, insurance companies and other financial institutions.
Accordingly, the secondary market for such securities is not as liquid
as, and is
more volatile than, the secondary market for higher-rated securities. In
addition, market trading volume for high yield U.S. corporate debt securities
is generally lower and the secondary market for such securities could shrink or
disappear suddenly and without warning as a result of adverse
market or economic conditions, independent of any specific adverse changes in
the condition of a particular issuer. The lack of sufficient market
liquidity may cause a fund to incur losses because it will be required to effect
sales at a disadvantageous time and then only at a substantial drop in
price. These factors may have an adverse effect on the market price and a fund’s
ability to dispose of particular portfolio investments. A less liquid
secondary market also may make it more difficult for a fund to obtain precise
valuations of the high yield securities in its portfolio.
A fund is
not obligated to dispose of securities whose issuers subsequently are in default
or that are downgraded below the rating requirements that the fund
imposes at the time of purchase.
Hybrid
Instruments
Hybrid
instruments (a type of potentially high-risk derivative) combine the elements of
futures contracts or options with those of debt, preferred equity or a
depository instrument.
Characteristics
of Hybrid Instruments. Generally,
a hybrid instrument is a debt security, preferred stock, depository share, trust
certificate, certificate
of deposit or other evidence of indebtedness on which a portion of or all
interest payments, and/or the principal or stated amount payable at
maturity, redemption or retirement, is determined by reference to the
following:
• |
prices,
changes in prices, or differences between prices of securities,
currencies, intangibles, goods, articles or commodities (collectively,
“underlying
assets”); or |
• |
an
objective index, economic factor or other measure, such as interest rates,
currency exchange rates, commodity indices, and securities indices
(collectively,
“benchmarks”). |
Hybrid
instruments may take a variety of forms, including, but not limited
to:
• |
debt
instruments with interest or principal payments or redemption terms
determined by reference to the value of a currency or commodity or
securities
index at a future point in time; |
• |
preferred
stock with dividend rates determined by reference to the value of a
currency; or |
• |
convertible
securities with the conversion terms related to a particular
commodity. |
Uses of
Hybrid Instruments. Hybrid
instruments provide an efficient means of creating exposure to a particular
market, or segment of a market, with the
objective of enhancing total return. For example, a fund may wish to take
advantage of expected declines in interest rates in several European
countries,
but avoid the transaction costs associated with buying and currency-hedging the
foreign bond positions.
One
approach is to purchase a U.S. dollar-denominated hybrid instrument whose
redemption price is linked to the average three-year interest rate in a
designated
group of countries. The redemption price formula would provide for payoffs of
greater than par if the average interest rate was lower than a specified
level, and payoffs of less than par if rates were above the specified level.
Furthermore, the investing fund could limit the downside risk of the
security by
establishing a minimum redemption price so that the principal paid at maturity
could not be below a predetermined minimum level if interest
rates were to rise significantly.
The purpose
of this type of arrangement, known as a structured security with an embedded put
option, is to give a fund the desired European bond exposure
while avoiding currency risk, limiting downside market risk, and lowering
transactions costs. Of course, there is no guarantee that such a strategy
will be successful and the value of a fund may decline if, for example, interest
rates do not move as anticipated or credit problems develop with the
issuer of the hybrid instrument.
Structured
Notes. Structured
notes include investments in an entity, such as a trust, organized and operated
solely for the purpose of restructuring the
investment characteristics of various securities. This type of restructuring
involves the deposit or purchase of specified instruments and the
issuance of
one or more classes of securities backed by, or representing interests, in the
underlying instruments. The cash flow on the underlying instruments
may be apportioned among the newly issued structured notes to create securities
with different investment characteristics, such as varying
maturities, payment priorities or interest rate provisions. The extent of the
income paid by the structured notes is dependent on the cash flow of the
underlying instruments.
Illiquid
Securities
No fund may
invest more than 15% of its net assets in securities that cannot be sold or
disposed of in seven calendar days or less without the sale or disposition
significantly changing the market value of the investment (“illiquid
securities”). Money Market Fund will not invest more than 5% of its total
assets in
illiquid securities.
Investment
in illiquid securities involves the risk that, because of the lack of consistent
market demand for such securities, a fund may
be forced to sell them at a discount from the last offer price. To the extent
that an investment is deemed to be an illiquid investment or a less liquid
investment, a fund can expect to be exposed to greater liquidity
risk.
Illiquid
securities may include, but are not limited to: (a) securities (except for
Section 4(a)(2) Commercial Paper, discussed below) that are not eligible
for resale pursuant to Rule 144A under the 1933 Act; (b) repurchase agreements
maturing in more than seven days (except for
those that can be
terminated after a notice period of seven days or less); (c) IOs and
POs of non-governmental issuers; (d) time deposits maturing in more than seven
days; (e)
federal fund loans maturing in more than seven days; (f) bank loan participation
interests; (g) foreign government loan participations; (h) municipal
leases and participations therein; and (i) any other securities or other
investments for which a liquid secondary market does not exist.
Each Trust
has implemented a written liquidity risk management program (the “LRM Program”)
and related procedures to manage the liquidity risk of a fund in
accordance with Rule 22e-4 under the 1940 Act (“Rule 22e-4”). Rule 22e-4 defines
“liquidity risk” as the risk that a fund could not meet requests to
redeem shares issued by the fund without significant dilution of the remaining
investors’ interests in the fund. The Board has designated the Advisor
to serve as the administrator of the LRM Program and the related procedures. As
a part of the LRM Program, the Advisor is responsible to identify
illiquid investments and categorize the relative liquidity of a fund’s
investments in accordance with Rule 22e-4. Under the LRM Program, the
Advisor
assesses, manages, and periodically reviews a fund’s liquidity risk, and is
responsible to make periodic reports to the Board and the SEC regarding
the liquidity of a fund’s investments, and to notify the Board and the SEC of
certain liquidity events specified in Rule 22e-4. The liquidity of a
fund’s
portfolio investments is determined based on relevant market, trading and
investment-specific considerations under the LRM Program.
Commercial
paper issued in reliance on Section 4(a)(2) of the 1933 Act (“Section 4(a)(2)
Commercial Paper”) is restricted as to its disposition under federal
securities law, and generally is sold to institutional investors, such as the
funds, who agree that they are purchasing the paper for investment purposes
and not with a view to public distribution. Any resale by the purchaser must be
made in an exempt transaction. Section 4(a)(2) Commercial Paper
normally is resold to other institutional investors, like the funds, through or
with the assistance of the issuer or investment dealers who make a market in
Section 4(a)(2) Commercial Paper, thus providing liquidity.
If the
Advisor determines, pursuant to the LRM Program and related procedures, that
specific Section 4(a)(2) Commercial Paper or securities that are restricted
as to resale but for which a ready market is available pursuant to an exemption
provided by Rule 144A under the 1933 Act or other exemptions
from the registration requirements of the 1933 Act are liquid, they will not be
subject to a fund’s limitation on investments in illiquid securities.
Investing in Section 4(a)(2) Commercial Paper could have the effect of
increasing the level of illiquidity in a fund if qualified institutional
buyers
become for a time uninterested in purchasing these restricted
securities.
Indexed
Securities
Indexed
securities are instruments whose prices are indexed to the prices of other
securities, securities indices, currencies, or other financial indicators.
Indexed securities typically, but not always, are debt securities or deposits
whose value at maturity or coupon rate is determined by reference
to a specific instrument or statistic.
Currency-indexed
securities typically are short-term to intermediate-term debt securities whose
maturity values or interest rates are determined by reference
to the values of one or more specified foreign currencies, and may offer higher
yields than U.S. dollar-denominated securities. Currency-indexed
securities may be positively or negatively indexed; that is, their maturity
value may increase when the specified currency value increases, resulting
in a security that performs similarly to a foreign denominated instrument, or
their maturity value may decline when foreign currencies increase,
resulting in a security whose price characteristics are similar to a put on the
underlying currency. Currency-indexed securities also may have prices that
depend on the values of a number of different foreign currencies relative to
each other.
The
performance of indexed securities depends to a great extent on the performance
of the security, currency, or other instrument to which they are indexed,
and also may be influenced by interest rate changes in the United States and
abroad. Indexed securities may be more volatile than the underlying
instruments. Indexed securities also are subject to the credit risks associated
with the issuer of the security, and their values may decline substantially
if the issuer’s creditworthiness deteriorates. Issuers of indexed securities
have included banks, corporations, and certain U.S. government
agencies. An indexed security may be leveraged to the extent that the magnitude
of any change in the interest rate or principal payable on an indexed
security is a multiple of the change in the reference price.
Index-Related
Securities (“Equity Equivalents”)
A fund may
invest in certain types of securities that enable investors to purchase or sell
shares in a basket of securities that seeks to track the performance
of an underlying index or a portion of an index. Such Equity Equivalents
include, among others DIAMONDS (interests in a basket of securities
that seeks to track the performance of the Dow Jones Industrial Average), SPDRs
or S&P Depositary Receipts (an exchange-traded fund that tracks the
S&P 500 Index). Such securities are similar to index mutual funds, but they
are traded on various stock exchanges or secondary markets. The value
of these securities is dependent upon the performance of the underlying index on
which they are based. Thus, these securities are subject to
the same
risks as their underlying indices as well as the securities that make up those
indices. For example, if the securities comprising an index that an
index-related security seeks to track perform poorly, the index-related security
will lose value.
Equity
Equivalents may be used for several purposes, including to simulate full
investment in the underlying index while retaining a cash balance for
portfolio
management purposes, to facilitate trading, to reduce transaction costs or to
seek higher investment returns where an Equity Equivalent is priced more
attractively than securities in the underlying index. Because the expense
associated with an investment in Equity Equivalents may be substantially
lower than the expense of small investments directly in the securities
comprising the indices they seek to track, investments in Equity Equivalents
may provide a cost-effective means of diversifying a fund’s assets across a
broad range of securities.
To the
extent a fund invests in securities of other investment companies, including
Equity Equivalents, fund shareholders would indirectly pay a portion
of the
operating costs of such companies in addition to the expenses of its own
operations. These costs include management, brokerage, shareholder servicing
and other operational expenses. Indirectly, if a fund invests in Equity
Equivalents, shareholders may pay higher operational costs than if they
owned the
underlying investment companies directly. Additionally, a fund’s investments in
such investment companies are subject to limitations under the 1940
Act and market availability.
The prices
of Equity Equivalents are derived and based upon the securities held by the
particular investment company. Accordingly, the level of risk involved in
the purchase or sale of an Equity Equivalent is similar to the risk involved in
the purchase or sale of traditional common stock, with the exception
that the pricing mechanism for such instruments is based on a basket of stocks.
The market prices of Equity Equivalents are expected to fluctuate
in accordance with both changes in the NAVs of their underlying indices and the
supply and demand for the instruments on the exchanges on which they
are traded. Substantial market or other disruptions affecting Equity Equivalents
could adversely affect the liquidity and value of the shares of a
fund.
Inflation-Indexed
Bonds
Inflation-indexed
bonds are debt instruments whose principal and/or interest value are adjusted
periodically according to a rate of inflation (usually a CPI). Two
structures are most common. The U.S. Treasury and some other issuers use a
structure that accrues inflation into the principal value of the bond. Most
other issuers pay out the inflation accruals as part of a semiannual
coupon.
U.S.
Treasury Inflation Protected Securities (“TIPS”) currently are issued with
maturities of five, ten, or thirty years, although it is possible that
securities
with other maturities will be issued in the future. The principal amount of TIPS
adjusts for inflation, although the inflation-adjusted principal is not paid
until maturity. Semiannual coupon payments are determined as a fixed percentage
of the inflation-adjusted principal at the time the payment is
made.
If the rate
measuring inflation falls, the principal value of inflation-indexed bonds will
be adjusted downward, and consequently the interest payable on these
securities (calculated with respect to a smaller principal amount) will be
reduced. At maturity, TIPS are redeemed at the greater of their
inflation-adjusted
principal or at the par amount at original issue. If an inflation-indexed bond
does not provide a guarantee of principal at maturity, the adjusted principal
value of the bond repaid at maturity may be less than the original
principal.
The value
of inflation-indexed bonds is expected to change in response to changes in real
interest rates. Real interest rates in turn are tied to the relationship
between nominal interest rates and the rate of inflation. For example, if
inflation were to rise at a faster rate than nominal interest rates,
real
interest rates would likely decline, leading to an increase in value of
inflation-indexed bonds. In contrast, if nominal interest rates increase at a
faster rate
than inflation, real interest rates would likely rise, leading to a decrease in
value of inflation-indexed bonds.
While these
securities, if held to maturity, are expected to be protected from long-term
inflationary trends, short-term increases in inflation may lead to a decline
in value. If nominal interest rates rise due to reasons other than inflation
(for example, due to an expansion of non-inflationary economic activity),
investors in these securities may not be protected to the extent that the
increase in rates is not reflected in the bond’s inflation measure.
The
inflation adjustment of TIPS is tied to the CPI-U, which is calculated monthly
by the U.S. Bureau of Labor Statistics. The CPI-U is a measurement of
price
changes in the cost of living, made up of components such as housing, food,
transportation, and energy. There can be no assurance that the CPI-U will
accurately measure the real rate of inflation in the prices of goods and
services.
Interfund
Lending
Pursuant to
an exemptive order issued by the SEC, a fund may lend money to, and borrow money
from, other funds advised by the Advisor or any other investment
advisor under common control with the Advisor, subject to the fundamental
restrictions on borrowing and lending applicable to the fund. Each fund
is authorized to participate fully in this program.
A fund will
borrow through the program only when the costs are equal to or lower than the
cost of bank loans, and a fund will lend through the program only when
the returns are higher than those available from an investment in overnight
repurchase agreements. Interfund loans and borrowings normally
extend overnight, but can have a maximum duration of seven days. Loans may be
called on one day’s notice. A fund may have to borrow from a bank at a
higher interest rate if an interfund loan is called or not renewed. Any delay in
repayment to a lending fund or from a borrowing fund could result in a
lost investment opportunity or additional borrowing costs.
Investment
in Other Investment Companies
A fund may
invest in other investment companies (including closed-end investment companies,
unit investment trusts, open-end investment companies,
investment companies exempted from registration under the 1940 Act pursuant to
the rules thereunder and other pooled vehicles) to the extent
permitted by federal securities laws,
including Section 12 of the 1940 Act, and the rules,
regulations and interpretations thereunder.
A fund
may invest
in other investment companies beyond the statutory limits set forth in Section
12 of the 1940 Act (“statutory limits”) to the
extent permitted
by an
exemptive rule adopted by the SEC or pursuant to an exemptive order obtained
from the SEC.
In October
2020, the SEC adopted Rule
12d1-4, which
became effective on January 19, 2021, and
permits a fund to
invest in other investment companies
beyond the statutory limits, subject to certain conditions. Compliance with
Rule 12d1-4
is required as of January 19,
2022.
Investing
in other investment companies involves substantially the same risks as investing
directly in the underlying instruments, but the total return on such
investments at the investment company-level may be reduced by the operating
expenses and fees of such other investment companies, including
advisory fees. Certain types of investment companies, such as closed-end
investment companies, issue a fixed number of shares that trade on a stock
exchange or may involve the payment of substantial premiums above the value of
such investment companies’ portfolio securities when traded OTC
or at discounts to their NAVs. Others are continuously offered at NAV, but also
may be traded in the secondary market.
Investments
in Creditors’ Claims
Creditors’
claims in bankruptcy (“Creditors’ Claims”) are rights to payment from a debtor
under the U.S. bankruptcy laws. Creditors’ Claims may be secured or
unsecured. A secured claim generally receives priority in payment over unsecured
claims.
Sellers of
Creditors’ Claims can either be: (i) creditors that have extended unsecured
credit to the debtor company (most commonly trade suppliers of materials
or services); or (ii) secured creditors (most commonly financial institutions)
that have obtained collateral to secure an advance of credit to the debtor.
Selling a Creditors’ Claim offers the creditor an opportunity to turn a claim
that otherwise might not be satisfied for many years into liquid assets.
A
Creditors’ Claim may be purchased directly from a creditor although most are
purchased through brokers. A Creditors’ Claim can be sold as a single
claim or as
part of a package of claims from several different bankruptcy filings.
Purchasers of Creditors’ Claims may take an active role in the reorganization
process of the bankrupt company and, in certain situations in which a Creditors’
Claim is not paid in full, the claim may be converted into stock
of the reorganized debtor.
Although
Creditors’ Claims can be sold to other investors, the market for Creditors’
Claims is not liquid and, as a result, a purchaser of a Creditors’ Claim may
be unable to sell the claim or may have to sell it at a drastically reduced
price. There is no guarantee that any payment will be received from a
Creditors’ Claim, especially in the case of unsecured claims.
Lending
of Securities
A
fund may lend
its securities so long as such loans do not represent more than 331/3% of its
total assets. As collateral for the loaned securities, the borrower
gives the lending portfolio collateral equal to at least 100% of the value of
the loaned securities. The collateral will consist of cash (including
U.S.
dollars and foreign currency), cash equivalents or securities issued or
guaranteed by the U.S. government or its agencies or instrumentalities. The
borrower
must also agree to increase the collateral if the value of the loaned securities
increases. If the market value of the loaned securities declines, the
borrower may request that some collateral be returned.
During the
existence of the loan, a fund will receive from the borrower amounts equivalent
to any dividends, interest or other distributions on the loaned
securities, as well as interest on such amounts. If the fund receives a payment
in lieu of dividends (a “substitute payment”) with respect to securities
on loan pursuant to a securities lending transaction, such income will not be
eligible for the dividends-received deduction (the “DRD”) for corporate
shareholders or for treatment as qualified dividend income for individual
shareholders. The DRD and qualified dividend income are discussed
more fully in this SAI under “Additional Information Concerning Taxes.”
Because
Class 1 shares of the funds are held directly by insurance companies
affiliated with the Advisor, such insurance companies, rather than individuals
who select the funds as investment options under variable insurance
contracts, would receive the benefit of any DRD. As a result, a decision by the
Advisor or an affiliated subadvisor for a particular fund to refrain
from securities lending could benefit the affiliated insurance companies (which
would receive the DRD) to the detriment of contract holders who have
selected that fund (as they would not receive the benefit of securities lending
income, including substitute payments). However, the Advisor and the
affiliated subadvisors have a fiduciary duty to independently assess whether
engaging in securities lending is in the best interests of a fund, which
should act
to limit this conflict of interest.
As with
other extensions of credit, there are risks that collateral could be inadequate
in the event of the borrower failing financially, which could result
in actual
financial loss, and risks that recovery of loaned securities could be delayed,
which could result in interference with portfolio management decisions
or exercise of ownership rights. The collateral is managed by an affiliate of
the Advisor, which may incentivize the Advisor to lend fund securities
to benefit this affiliate. The Advisor maintains robust oversight of securities
lending activity and seeks to ensure that all lending activity undertaken
by a fund is in the fund’s best interests. A fund will be responsible for the
risks associated with the investment of cash collateral, including the risk
that the fund may lose money on the investment or may fail to earn sufficient
income to meet its obligations to the borrower. In addition, a fund may lose
its right to vote its shares of the loaned securities at a shareholder meeting
if the subadvisor does not recall or does not timely recall the loaned
securities, or if the borrower fails to return the recalled securities in
advance of the record date for the meeting.
The Trust,
on behalf of certain of its funds, has entered into an agency agreement for
securities lending transactions (“Securities Lending Agreement”) with
Citibank and, separately, with Brown Brothers Harriman (each, a “Securities
Lending Agent”). Pursuant to each Securities Lending Agreement, Citibank or
Brown Brothers Harriman acts as securities lending agent for the funds and
administers each fund’s securities lending program. During the fiscal
year, each Securities Lending Agent performed various services for the funds,
including the following: (i) lending portfolio securities, previously
identified
by the fund as available for loan, and held by the fund’s custodian
(“Custodian”) on behalf of the fund, to borrowers identified by the fund in
the
Securities Lending Agreement; (ii) instructing the Custodian to receive and
deliver securities, as applicable, to effect such loans; (iii) locating
borrowers;
(iv) monitoring daily the market value of loaned securities; (v) ensuring daily
movement of collateral associated with loan transactions; (vi)
marking to
market loaned securities and non-cash collateral; (vii) monitoring dividend
activity with respect to loaned securities; (viii) negotiating loan terms with
the borrowers; (ix) recordkeeping and account servicing related to securities
lending activities; and (x) arranging for the return of loaned securities
at the termination of the loan. Under each Securities Lending Agreement,
Citibank or Brown Brothers Harriman, as applicable, generally will bear the
risk that a borrower may default on its obligation to return loaned
securities.
Securities
lending involves counterparty risk, including the risk that the loaned
securities may not be returned or returned in a timely manner and/or a
loss of
rights in the collateral if the borrower or the lending agent defaults or fails
financially. This risk is increased when the fund’s loans are concentrated
with a single or limited number of borrowers. There are no limits on the number
of borrowers to which the fund may lend securities and the fund
may lend securities to only one or a small group of borrowers. In addition,
under each Securities Lending Agreement, loans may be made to affiliates
of Citibank or Brown Brothers Harriman, as applicable, as identified in the
applicable Securities Lending Agreement.
Cash
collateral may be invested by a fund in JHCT, a
privately offered 1940 Act registered institutional money market fund.
Investment
of cash collateral
offers the opportunity for a fund to profit from income earned by this
collateral pool, but also the risk of loss, should the value of the fund’s
shares in
the collateral pool decrease below the NAV at
which such shares were purchased.
For each
fund that engaged in securities lending activities during the fiscal period
ended March 31, 2022, the
following tables detail the amounts of income and
fees/compensation related to such activities during the period. Any fund not
listed below did not engage in securities lending activities during the
fiscal period ended March 31, 2022.
|
|
|
|
|
Fund
Name |
DISCIPLINED
VALUE
FUND |
DISCIPLINED
VALUE
MID CAP FUND |
DIVERSIFIED
REAL
ASSETS FUND |
GLOBAL
SHAREHOLDER
YIELD
FUND |
Gross
Income from securities lending activities ($) |
10,056 |
167,334 |
488,473 |
219,273 |
Fees
and/or compensation for securities lending activities and
related services |
|
|
|
|
Fees
paid to securities lending agent from a revenue split ($)
|
160 |
3,107 |
55,836 |
21,715 |
Fees
paid for any cash collateral management service (including
fees deducted from a pooled cash collateral reinvestment
vehicle) that are not included in the revenue split
($) |
8,613 |
17,818 |
42,150 |
15,094 |
Administrative
fees not included in revenue split |
— |
— |
— |
— |
Indemnification
fee not included in revenue split |
— |
— |
— |
— |
Rebate
(paid to borrower) ($) |
— |
135 |
11 |
570 |
Other
fees not included in revenue split (specify) |
|
|
|
|
Aggregate
fees/compensation for securities lending activities
($) |
8,773 |
21,060 |
97,997 |
37,379 |
Net
Income from securities lending activities ($) |
1,283 |
146,274 |
390,476 |
181,894 |
|
|
|
|
Fund
Name |
INTERNATIONAL
GROWTH
FUND |
MID
CAP GROWTH FUND1
|
MID
CAP GROWTH FUND2
|
Gross
Income from securities lending activities ($) |
1,434,027 |
41,485 |
267,505 |
Fees
and/or compensation for securities lending activities and related
services |
|
|
|
Fees
paid to securities lending agent from a revenue split ($)
|
139,875 |
3,020 |
26,445 |
Fees
paid for any cash collateral management service (including fees deducted
from
a pooled cash collateral reinvestment vehicle) that are not included in
the revenue
split ($) |
47,385 |
4,311 |
37,642 |
Administrative
fees not included in revenue split |
— |
— |
|
Indemnification
fee not included in revenue split |
— |
— |
|
Rebate
(paid to borrower) ($) |
3,000 |
— |
|
Other
fees not included in revenue split (specify) |
|
|
|
Aggregate
fees/compensation for securities lending activities ($) |
190,260 |
7,331 |
64,087 |
Net
Income from securities lending activities ($) |
1,243,767 |
34,154 |
203,418 |
1 |
Fiscal
period from September 1, 2021 to March 31, 2022 (including predecessor
fund). |
2 |
Predecessor
fund information for its fiscal year ended August 31,
2021. |
Loan
Participations and Assignments; Term Loans
Loan
participations are loans or other direct debt instruments that are interests in
amounts owned by a corporate, governmental or other borrower to another
party. They may represent amounts owed to lenders or lending syndicates to
suppliers of goods or services, or to other parties. A fund will have the
right to receive payments of principal, interest and any fees to which it is
entitled only from the lender selling the participation and only upon
receipt by
the lender of the payments from the borrower. In connection with purchasing
participations, a fund generally will have no right to enforce compliance
by the borrower with the term of the loan agreement relating to loan, nor any
rights of set-off against the borrower, and a fund may not directly
benefit from any collateral supporting the loan in which it has purchased the
participation. As a result, the fund will assume the credit risk of both the
borrower and the lender that is selling the participation. In the event of the
insolvency of the lender selling a participation, a fund may be treated as
a general creditor of the lender and may not benefit from any set-off between
the lender and the borrower.
When a fund
purchases assignments from lenders it will acquire direct rights against the
borrower on the loan. However, because assignments are arranged
through private negotiations between potential assignees and potential
assignors, the rights and obligation acquired by a fund as the purchaser
of an assignment may differ from, and be more limited than, those held by the
assigning lender. Investments in loan participations and assignments
present the possibility that a fund could be held liable as a co-lender under
emerging legal theories of lender liability. In addition, if the loan is
foreclosed, a fund could be part owner of any collateral and could bear the
costs and liabilities of owning and disposing of the collateral. It is
anticipated
that such securities could be sold only to a limited number of institutional
investors. In addition, some loan participations and assignments may not be
rated by major rating agencies and may not be protected by the securities
laws.
A term loan
is typically a loan in a fixed amount that borrowers repay in a scheduled series
of repayments or a lump-sum payment at maturity. A delayed
draw loan is a special feature in a term loan that permits the borrower to
withdraw predetermined portions of the total amount borrowed at certain
times. If a fund enters into a commitment with a borrower regarding a delayed
draw term loan or bridge loan, the fund will be obligated on one or more
dates in the future to lend the borrower monies (up to an aggregate stated
amount) if called upon to do so by the borrower. Once repaid, a term loan
cannot be drawn upon again.
Investments
in loans and loan participations will subject a fund to liquidity risk. Loans
and loan participations may be transferable among financial institutions,
but may not have the liquidity of conventional debt securities and are often
subject to restrictions on resale, thereby making them potentially
illiquid. For example, the purchase or sale of loans requires, in many cases,
the consent of either a third party (such as the lead or agent bank for
the loan) or of the borrower, and although such consent is, in practice,
infrequently withheld, the consent requirement can delay a purchase or hinder a
fund’s ability to dispose of its investments in loans in a timely fashion. In
addition, in some cases, negotiations involved in disposing of indebtedness
may require weeks to complete. Consequently, some indebtedness may be difficult
or impossible to dispose of readily at what a subadvisor
believes to be a fair price.
Corporate
loans that a fund may acquire or in which a fund may purchase a loan
participation are made generally to finance internal growth, mergers,
acquisitions,
stock repurchases, leveraged buy-outs, leverage recapitalizations and other
corporate activities. The highly leveraged capital structure of the
borrowers in certain of these transactions may make such loans especially
vulnerable to adverse changes in economic or market conditions and greater
credit risk than other investments.
Certain of
the loan participations or assignments acquired by a fund may involve unfunded
commitments of the lenders or revolving credit facilities under which
a borrower may from time to time borrow and repay amounts up to the maximum
amount of the facility. In such cases, a fund would have an
obligation to advance its portion of such additional borrowings upon the terms
specified in the loan documentation. Such an obligation may have the effect
of requiring a fund to increase its investment in a company at a time when it
might not be desirable to do so (including at a time when the company’s
financial condition makes it unlikely that such amounts will be
repaid).
The
borrower of a loan in which a fund holds an interest (including through a loan
participation) may, either at its own election or pursuant to the terms
of the loan
documentation, prepay amounts of the loan from time to time. The degree to which
borrowers prepay loans, whether as a contractual requirement
or at their election, may be affected by general business conditions, the
financial condition of the borrower and competitive conditions among
lenders, among other things. As such, prepayments cannot be predicted with
accuracy. Upon a prepayment, either in part or in full, the actual outstanding
debt on which a fund derives interest income will be reduced. The effect of
prepayments on a fund’s performance may be mitigated by the receipt of
prepayment fees, and the fund’s ability to reinvest prepayments in other loans
that have similar or identical yields. However, there is no assurance
that a fund will be able to reinvest the proceeds of any loan prepayment at the
same interest rate or on the same terms as those of the prepaid
loan.
A fund may
invest in loans that pay interest at fixed rates and loans that pay interest at
rates that float or reset periodically at a margin above a generally
recognized base lending rate, such as the Prime Rate (the interest rate that
banks charge their most creditworthy customers), LIBOR, or another
generally recognized base lending rate. Most floating rate loans are senior in
rank in the event of bankruptcy to most other securities of the borrower
such as common stock or public bonds. In addition, floating rate loans also are
normally secured by specific collateral or assets of the borrower so
that the holders of the loans will have a priority claim on those assets in the
event of default or bankruptcy of the issuer. While the seniority in rank and
the security interest are helpful in reducing credit risk, such risk is not
eliminated. Securities with floating interest rates can be less sensitive
to interest rate changes, but may decline in value if their interest rates do
not rise as much as interest rates in general, or if interest rates decline.
While, because of this interest rate reset feature, loans with resetting
interest rates provide a considerable degree of protection against rising
interest
rates, there is still potential for interest rates on such loans to lag changes
in interest rates in general for some period of time. In addition, changes in
interest rates will affect the amount of interest income paid to a fund as the
floating rate instruments adjust to the new levels of interest
rates. In a
rising base rate environment, income generation generally will increase.
Conversely, during periods when the base rate is declining, the income
generating ability of the loan instruments will be adversely
affected.
Investments
in many loans have additional risks that result from the use of agents and other
interposed financial institutions. Many loans are structured
and administered by a financial institution (e.g., a commercial bank) that acts
as the agent of the lending syndicate. The agent typically administers
and enforces the loan on behalf of the other lenders in the lending syndicate.
In addition, an institution, typically but not always the agent, holds the
collateral, if any, on behalf of the lenders. A financial institution’s
employment as an agent might be terminated in the event that it fails to
observe a
requisite standard of care or becomes insolvent. A successor agent would
generally be appointed to replace the terminated agent, and assets held
by the agent under the loan agreement would likely remain available to holders
of such indebtedness. However, if assets held by the agent for the
benefit of a fund were determined to be subject to the claims of the agent’s
general creditors, the fund might incur certain costs and delays in realizing
payment on a loan or loan participation and could suffer a loss of principal
and/or interest. In situations involving other interposed financial institutions
(e.g., an insurance company or government agency) similar risks may
arise.
Loans
and Other Direct Debt Instruments
Direct debt
instruments are interests in amounts owed by a corporate, governmental, or other
borrower to lenders or lending syndicates (loans and loan
participations), to suppliers of goods or services (trade claims or other
receivables), or to other parties. Direct debt instruments involve a risk of
loss in
case of default or insolvency of the borrower and may offer less legal
protection to the purchaser in the event of fraud or misrepresentation, or
there may
be a requirement that a fund supply additional cash to a borrower on demand.
U.S. federal securities laws afford certain protections against fraud and
misrepresentation in connection with the offering or sale of a security, as well
as against manipulation of trading markets for securities. It is unclear
whether these protections are available to investments in loans and other forms
of direct indebtedness under certain circumstances, in which case such
risks may be increased.
A fund may
be in possession of material non-public information about a borrower as a result
of owning a floating rate instrument issued by such borrower.
Because of prohibitions on trading in securities of issuers while in possession
of such information, a fund might be unable to enter into a transaction
in a publicly traded security issued by that borrower when it would otherwise be
advantageous to do so.
Market
Capitalization Weighted Approach
A fund’s
structure may involve market capitalization weighting in determining individual
security weights and, where applicable, country or region weights.
Market capitalization weighting means each security is generally purchased based
on the issuer’s relative market capitalization. Market capitalization
weighting may be adjusted by a subadvisor, for a variety of reasons. A fund may
deviate from market capitalization weighting to limit or fix the
exposure to a particular country or issuer to a maximum portion of the assets of
the fund. Additionally, a subadvisor may consider such factors as free
float, momentum, trading strategies, size, relative
price, liquidity,
profitability, investment
characteristics and other
factors determined to be appropriate
by a subadvisor given market conditions. In assessing relative
price, a subadvisor may consider additional factors such as price to cash
flow or
price to earnings ratios. In assessing profitability,
a subadvisor may consider different ratios, such as that of earnings or profits
from operations
relative to book value or assets. The
criteria a subadvisor uses for assessing relative price and profitability are
subject to change from time to time.
A
subadvisor may exclude the eligible security of a company that meets applicable
market capitalization criterion if it determines, in its judgment,
that the purchase of such security is inappropriate in light of other
conditions. These adjustments will result in a deviation from traditional
market
capitalization weighting. A further deviation may occur due to holdings in
securities received in connection with corporate actions. A
subadvisor
may consider a small capitalization company’s investment characteristics with
respect to other eligible companies when making investment
decisions and may exclude a small capitalization company when the manager
determines it to be appropriate. In assessing a company’s investment
characteristics, a subadvisor may consider ratios such as recent changes in
assets divided by total assets. Under normal circumstances, a fund will
seek to limit such exclusion to no more than 5% of the eligible small
capitalization company universe in each country that the fund invests.
The
criteria a subadvisor uses for assessing a company’s investment characteristics
is subject to change from time to time.
Adjustment
for free float modifies market capitalization weighting to exclude the share
capital of a company that is not freely available for trading in the public
equity markets. For example, the following types of shares may be excluded: (i)
those held by strategic investors (such as governments, controlling
shareholders and management); (ii) treasury shares; or (iii) shares subject to
foreign ownership restrictions.
Furthermore,
a subadvisor may reduce the relative amount of any security held in order to
retain sufficient portfolio liquidity. A portion, but generally not in
excess of 20% of a fund’s assets, may be invested in interest-bearing
obligations, such as money market instruments, thereby causing further
deviation
from market capitalization weighting. A further deviation may occur due to
holdings in securities received in connection with corporate actions.
Block
purchases of eligible securities may be made at opportune prices, even though
such purchases exceed the number of shares that, at the time of purchase,
would be purchased under a market capitalization weighted approach. Generally,
changes in the composition and relative ranking (in terms of market
capitalization) of the stocks that are eligible for purchase take place with
every trade when the securities markets are open for trading due, primarily,
to price changes of such securities. On at least a semiannual basis, a
subadvisor will identify companies whose stock is eligible for investment
by the fund. Additional investments generally will not be made in securities
that have changed in value sufficiently to be excluded from a subadvisor’s
then-current market capitalization requirement for eligible portfolio
securities. This may result in further deviation from market capitalization
weighting. Such deviation could be substantial if a significant amount of
holdings of a fund change in value sufficiently to be excluded from the
requirement for eligible securities but not by a sufficient amount to warrant
their sale.
Country
weights may be based on the total market capitalization of companies within each
country. The country weights may take into consideration the free
float of companies within a country or whether these companies are eligible to
be purchased for the particular strategy. In addition, to maintain a
satisfactory level of diversification, a subadvisor may limit or fix the
exposure to a particular country or region to a maximum proportion of
the assets
of that vehicle. Country weights may also vary due to general day-to-day trading
patterns and price movements. The weighting of countries may vary
from their weighting in published international indices.
Money
Market Instruments
Money
market instruments (and other securities as noted under each fund description)
may be purchased for temporary
defensive purposes or for
short-term
investment purposes. General overnight cash held in a fund’s portfolio may also
be invested in JHCT, a privately offered 1940 Act
registered
institutional money market fund subadvised
by Manulife IM (US), an affiliate of the Advisor, that is part of the same group
of investment companies
as the fund and that is offered exclusively to funds in the same group of
investment companies.
Mortgage
Dollar Rolls
Under a
mortgage dollar roll, a fund sells mortgage-backed securities for delivery in
the future (generally within 30 days) and simultaneously contracts to
repurchase substantially similar securities (of the same type, coupon and
maturity) on a specified future date. During the roll period, a fund forgoes
principal
and interest paid on the mortgage-backed securities. A fund is compensated by
the difference between the current sale price and the lower forward
price for the future purchase (often referred to as the “drop”), as well as by
the interest earned on the cash proceeds of the initial sale. A fund
also may be
compensated by receipt of a commitment fee. A fund may only enter into “covered
rolls.” A covered roll is a specific type of dollar roll for which there
is an offsetting cash or cash equivalent security position that matures on or
before the forward settlement date of the dollar roll transaction
or for which a fund maintains on its records liquid assets having an aggregate
value at least equal to the amount of such commitment to repurchase.
Dollar roll transactions involve the risk that the market value of the
securities sold by a fund may decline below the repurchase price of those
securities. A mortgage dollar roll may be considered a form of leveraging, and
may, therefore, increase fluctuations in a fund’s NAV per share. Covered
rolls are not treated as a borrowing or other senior security and will be
excluded from the calculation of a fund’s borrowing and other senior
securities.
For financial reporting and tax purposes, the funds treat mortgage dollar rolls
as two separate transactions; one involving the purchase of a security
and a separate transaction involving a sale.
Mortgage
Securities
Prepayment
of Mortgages. Mortgage
securities differ from conventional bonds in that principal is paid over the
life of the securities rather than at maturity.
As a result, when a fund invests in mortgage securities, it receives monthly
scheduled payments of principal and interest, and may receive unscheduled
principal payments representing prepayments on the underlying mortgages. When a
fund reinvests the payments and any unscheduled prepayments
of principal it receives, it may receive a rate of interest that is higher or
lower than the rate on the existing mortgage securities. For this reason,
mortgage securities may be less effective than other types of debt securities as
a means of locking in long term interest rates.
In
addition, because the underlying mortgage loans and assets may be prepaid at any
time, if a fund purchases mortgage securities at a premium, a prepayment
rate that is faster than expected will reduce yield to maturity, while a
prepayment rate that is slower than expected will increase yield to maturity.
Conversely, if a fund purchases these securities at a discount, faster than
expected prepayments will increase yield to maturity, while slower than
expected payments will reduce yield to maturity.
Adjustable
Rate Mortgage Securities. Adjustable
rate mortgage securities are similar to the fixed rate mortgage securities
discussed above, except
that, unlike fixed rate mortgage securities, adjustable rate mortgage securities
are collateralized by or represent interests in mortgage loans with
variable rates of interest. These variable rates of interest reset periodically
to align themselves with market rates. Most adjustable rate mortgage
securities
provide for an initial mortgage rate that is in effect for a fixed period,
typically ranging from three to twelve months. Thereafter, the mortgage
interest rate will reset periodically in accordance with movements in a
specified published interest rate index. The amount of interest due to
an
adjustable rate mortgage holder is determined in accordance with movements in a
specified published interest rate index by adding a pre-determined
increment or “margin” to the specified interest rate index. Many adjustable rate
mortgage securities reset their interest rates based on changes
in:
• |
one-year,
three-year and five-year constant maturity Treasury Bill
rates; |
• |
three-month
or six-month Treasury Bill rates; |
• |
11th
District Federal Home Loan Bank Cost of
Funds; |
• |
National
Median Cost of Funds; or |
• |
one-month,
three-month, six-month or one-year LIBOR and other market
rates. |
During
periods of increasing rates, a fund will not benefit from such increase to the
extent that interest rates rise to the point where they cause the current
coupon of adjustable rate mortgages held as investments to exceed any maximum
allowable annual or lifetime reset limits or “cap rates” for a particular
mortgage. In this event, the value of the mortgage securities held by a fund
would likely decrease. During periods of declining interest rates, income to a
fund derived from adjustable rate mortgages that remain in a mortgage pool may
decrease in contrast to the income on fixed rate mortgages,
which will remain constant. Adjustable rate mortgages also have less potential
for appreciation in value as interest rates decline than do fixed rate
investments. Also, a fund’s NAV could vary to the extent that current yields on
adjustable rate mortgage securities held as investments are different
than market yields during interim periods between coupon reset
dates.
Privately
Issued Mortgage Securities. Privately
issued mortgage securities provide for the monthly principal and interest
payments made by individual
borrowers to pass through to investors on a corporate basis, and in privately
issued collateralized mortgage obligations, as further described
below. Privately issued mortgage securities are issued by private originators
of, or investors in, mortgage loans, including:
• |
savings
and loan associations; and |
• |
special
purpose subsidiaries of the foregoing. |
Since
privately issued mortgage certificates are not guaranteed by an entity having
the credit status of GNMA or Freddie Mac, such securities generally
are structured with one or more types of credit enhancement. For a description
of the types of credit enhancements that may accompany privately
issued mortgage securities, see “Types of Credit Support” below. To the extent
that a fund invests in mortgage securities, it will not limit its investments
in mortgage securities to those with credit enhancements.
Collateralized
Mortgage Obligations. CMOs
generally are bonds or certificates issued in multiple classes that are
collateralized by or represent an interest in
mortgages. CMOs may be issued by single-purpose, stand-alone finance
subsidiaries or trusts of financial institutions, government agencies,
investment banks or other similar institutions. Each class of CMOs, often
referred to as a “tranche,” may be issued with a specific fixed coupon rate
(which may be zero) or a floating coupon rate. Each class of CMOs also has a
stated maturity or final distribution date. Principal prepayments
on the underlying mortgages may cause the CMOs to be retired substantially
earlier than their stated maturities or final distribution dates.
Interest is paid or accrued on CMOs on a monthly, quarterly or semiannual
basis.
The
principal of and interest on the underlying mortgages may be allocated among the
several classes of a series of a CMO in many ways. The general goal sought
to be achieved in allocating cash flows on the underlying mortgages to the
various classes of a series of CMOs is to create tranches on which the
expected cash flows have a higher degree of predictability than the underlying
mortgages. In creating such tranches, other tranches may be subordinated
to the interests of these tranches and receive payments only after the
obligations of the more senior tranches have been satisfied. As a general
matter, the more predictable the cash flow is on a CMO tranche, the lower the
anticipated yield will be on that tranche at the time of issuance. As part of
the process of creating more predictable cash flows on most of the tranches in a
series of CMOs, one or more tranches generally must be created
that absorb most of the volatility in the cash flows on the underlying
mortgages. The yields on these tranches are relatively higher than on
tranches
with more predictable cash flows. Because of the uncertainty of the cash flows
on these tranches, and the sensitivity of these transactions to changes in
prepayment rates on the underlying mortgages, the market prices of and yields on
these tranches tend to be highly volatile. The market prices of
and yields on tranches with longer terms to maturity also tend to be more
volatile than tranches with shorter terms to maturity due to these same
factors. To the extent the mortgages underlying a series of a CMO are so-called
“subprime mortgages” (mortgages granted to borrowers whose credit
history is not sufficient to obtain a conventional mortgage), the risk of
default is higher, which increases the risk that one or more tranches of a
CMO will
not receive its predicted cash flows.
CMOs
purchased by a fund may be:
1 |
collateralized
by pools of mortgages in which each mortgage is guaranteed as to payment
of principal and interest by an agency or instrumentality of
the U.S. government; |
2 |
collateralized
by pools of mortgages in which payment of principal and interest is
guaranteed by the issuer and the guarantee is collateralized by
U.S.
government securities; or |
3 |
securities
for which the proceeds of the issuance are invested in mortgage securities
and payment of the principal and interest is supported by the credit
of an agency or instrumentality of the U.S.
government. |
Separate
Trading of Registered Interest and Principal of Securities. Separately
traded interest components of securities may be issued or guaranteed
by the U.S. Treasury. The interest components of selected securities are traded
independently under the Separate Trading of Registered Interest
and Principal of Securities program. Under the Separate Trading of Registered
Interest and Principal of Securities program, the interest components
are individually numbered and separately issued by the U.S. Treasury at the
request of depository financial institutions, which then trade the
component parts independently.
Stripped
Mortgage Securities. Stripped
mortgage securities are derivative multi-class mortgage securities. Stripped
mortgage securities may be issued by
agencies or instrumentalities of the U.S. government, or by private issuers,
including savings and loan associations, mortgage banks, commercial
banks, investment banks and special purpose subsidiaries of the foregoing.
Stripped mortgage securities have greater volatility than other types of
mortgage securities in which a fund invests. Although stripped mortgage
securities are purchased and sold by institutional investors through
several
investment banking firms acting as brokers or dealers, the market for such
securities has not yet been fully developed. Accordingly, stripped mortgage
securities may be illiquid and, together with any other illiquid investments,
will not exceed a fund’s limitation on investments in illiquid securities.
Stripped
mortgage securities are usually structured with two classes that receive
different proportions of the interest and principal distributions on a
pool of
mortgage assets. A common type of stripped mortgage security will have one class
receiving some of the interest and most of the principal from the
mortgage assets, while the other class will receive most of the interest and the
remainder of the principal. In the most extreme case, one class will
receive all of the interest (the interest only or “IO” class), while the other
class will receive all of the principal (the principal only or “PO” class).
The yield
to maturity on an IO class is extremely sensitive to changes in prevailing
interest rates and the rate of principal payments (including
prepayments)
on the related underlying mortgage assets. A rapid rate of principal payments
may have a material adverse effect on an investing fund’s yield to
maturity. If the underlying mortgage assets experience greater than anticipated
prepayments of principal, the fund may fail to fully recoup its initial
investment in these securities even if the securities are rated
highly.
As interest
rates rise and fall, the value of IOs tends to move in the same direction as
interest rates. The value of the other mortgage securities described
in the Prospectus and this SAI, like other debt instruments, will tend to move
in the opposite direction to interest rates. Accordingly, investing
in IOs, in conjunction with the other mortgage securities described in the
Prospectus and this SAI, is expected to contribute to the relative stability
of a fund’s NAV.
Similar securities
such as Super Principal Only (“SPO”) and Levered Interest Only (“LIO”) are more
volatile than POs and IOs. Risks associated with instruments
such as SPOs are similar in nature to those risks related to investments in POs.
Risks associated with LIOs and IOettes (a.k.a. “high coupon
bonds”) are similar in nature to those associated with IOs. Other similar
instruments may develop in the future.
Under the
Code, POs may generate taxable income from the current accrual of original issue
discount, without a corresponding distribution of cash to a
fund.
Inverse
Floaters. Inverse
floaters may be issued by agencies or instrumentalities of the U.S. government,
or by private issuers, including savings and loan
associations, mortgage banks, commercial banks, investment banks and special
purpose subsidiaries of the foregoing. Inverse floaters have greater
volatility than other types of mortgage securities in which a fund invests (with
the exception of stripped mortgage securities and there is a risk that the
market value will vary from the amortized cost). Although inverse floaters are
purchased and sold by institutional investors through several investment
banking firms acting as brokers or dealers, the market for such securities has
not yet been fully developed. Accordingly, inverse floaters may be
illiquid. Any illiquid inverse floaters, together with any other illiquid
investments, will not exceed a fund’s limitation on investments in illiquid
securities.
Inverse
floaters are derivative mortgage securities that are structured as a class of
security that receives distributions on a pool of mortgage assets. Yields on
inverse floaters move in the opposite direction of short-term interest rates and
at an accelerated rate.
Types of
Credit Support. Mortgage
securities are often backed by a pool of assets representing the obligations of
a number of different parties. To lessen the
impact of an obligor’s failure to make payments on underlying assets, mortgage
securities may contain elements of credit support. A discussion
of credit support is included in “Asset-Backed Securities.”
Municipal
Obligations
The two
principal classifications of municipal obligations are general obligations and
revenue obligations. General obligations are secured by the issuer’s
pledge of its full faith, credit and taxing power for the payment of principal
and interest. Revenue obligations are payable only from the revenues
derived from a particular facility or class of facilities or in some cases from
the proceeds of a special excise or other tax. For example, industrial
development and pollution control bonds are in most cases revenue obligations
since payment of principal and interest is dependent solely on the
ability of the user of the facilities financed or the guarantor to meet its
financial obligations, and in certain cases, the pledge of real and personal
property as security for payment.
Issuers of
municipal obligations are subject to the provisions of bankruptcy, insolvency
and other laws affecting the rights and remedies of creditors, such as the
Federal Bankruptcy Act, and laws, if any, that may be enacted by Congress or
state legislatures extending the time for payment of principal or interest
or both, or imposing other constraints upon enforcement of such obligations.
There also is the possibility that as a result of litigation or other
conditions, the power or ability of any one or more issuers to pay when due the
principal of and interest on their municipal obligations may be affected.
Municipal
Bonds. Municipal
bonds are issued to obtain funding for various public purposes, including the
construction of a wide range of public facilities
such as airports, highways, bridges, schools, hospitals, housing, mass
transportation, streets and water and sewer works. Other public purposes
for which municipal bonds may be issued include refunding outstanding
obligations, obtaining funds for general operating expenses and obtaining
funds to lend to other public institutions and facilities. In addition, certain
types of industrial development bonds are issued by or on behalf of public
authorities to obtain funds for many types of local, privately operated
facilities. Such debt instruments are considered municipal obligations if
the
interest paid on them is exempt from federal income tax. The payment of
principal and interest by issuers of certain obligations purchased may be
guaranteed
by a letter of credit, note repurchase agreement, insurance or other credit
facility agreement offered by a bank or other financial institution.
Such guarantees and the creditworthiness of guarantors will be considered by a
subadvisor in determining whether a municipal obligation meets
investment quality requirements. No assurance can be given that a municipality
or guarantor will be able to satisfy the payment of principal or interest on
a municipal obligation.
The yields
or returns of municipal bonds depend on a variety of factors, including general
market conditions, effective marginal tax rates, the financial condition
of the issuer, general conditions of the municipal bond market, the size of a
particular offering, the maturity of the obligation, and the rating (if any) of
the issue. The ratings of S&P, Moody’s and Fitch represent their opinions as
to the quality of various municipal bonds that they undertake to rate. It
should be emphasized, however, that ratings are not absolute standards of
quality. For example, depending on market conditions, municipal bonds with
the same maturity and stated interest rate, but with different ratings, may
nevertheless have the same yield. See Appendix A for a description
of ratings. Many issuers of securities choose not to have their obligations
rated. Although unrated securities eligible for purchase must be determined
to be comparable in quality to securities having certain specified ratings, the
market for unrated securities may not be as broad as for rated
securities since many investors rely on rating organizations for credit
appraisal. Yield disparities may occur for reasons not directly related to the
investment
quality of particular issues or the general movement of interest rates, due to
such factors as changes in the overall demand or supply of various
types of municipal bonds.
The costs
associated with combating the
coronavirus
(COVID-19) pandemic and the negative impact on tax revenues has adversely
affected the financial
condition of many states and their political subdivisions. The effects of this
pandemic could affect the ability of states and their political subdivisions
to make payments on debt obligations when due and could adversely impact the
value of their bonds, which could negatively impact the performance
of the fund.
Municipal
Bonds Issued by the Commonwealth of Puerto Rico. Municipal
obligations issued by the Commonwealth of Puerto Rico and its agencies, or
other U.S.
territories, generally are tax-exempt.
Adverse
economic, market, political, or other conditions within Puerto Rico may
negatively affect the value of a fund’s holdings in municipal obligations
issued by
the Commonwealth of Puerto Rico and its agencies. The spread of
COVID-19 and the related governmental and public responses have had,
and may
continue to have an adverse effect on Puerto Rico’s economy.
Puerto Rico
has faced
and continues
to face significant fiscal challenges, including persistent government budget
deficits, underfunded public pension benefit
obligations, underfunded government retirement systems, sizable debt service
obligations and a high unemployment rate. In recent years, several
rating organizations have downgraded a number of securities issued in Puerto
Rico to below investment-grade or placed them on “negative watch.”
Puerto Rico has previously missed payments on its general obligation debt.
As a result
of Puerto
Rico’s fiscal
challenges, it entered into a
process
analogous to a bankruptcy proceeding in U.S. courts. Recently,
Puerto Rico received court approval to be released from bankruptcy through a
large
restructuring of its U.S. municipal debt. The restructuring was recommended by
an oversight board, an unelected body that shares power with elected
officials, that is federally mandated to oversee Puerto Rico’s finances.
Pursuant to federal law, the oversight board will remain intact and can
only
disband after Puerto Rico experiences four consecutive years of balanced
budgets. The coronavirus (COVID-19) pandemic,
any future defaults, or
actions by
the oversight board, among other
factors, could have
a negative impact on the marketability, liquidity, or value of certain
investments held by a fund
and could reduce a fund’s performance.
Municipal
Notes. Municipal
notes are short-term obligations of municipalities, generally with a maturity
ranging from six months to three years. The principal
types of such notes include tax, bond and revenue anticipation notes, project
notes and construction loan notes.
Tax-Anticipation
Notes. Tax
anticipation notes are issued to finance working capital needs of
municipalities. Generally, they are issued in anticipation of various
tax revenues, such as income, sales, use and business taxes, and are
specifically payable from these particular future tax revenues.
Bond
Anticipation Notes. Bond
anticipation notes are issued to provide interim financing until long-term bond
financing can be arranged. In most cases, the
long-term bonds then provide the funds for the repayment of the
notes.
Revenue
Anticipation Notes. Revenue
anticipation notes are issued in expectation of receipt of specific types of
revenue, other than taxes, such as federal
revenues available under Federal Revenue Sharing Programs.
Project
Notes. Project
notes are backed by an agreement between a local issuing agency and the Federal
Department of Housing and Urban Development
(“HUD”) and carry a U.S. government guarantee. These notes provide financing for
a wide range of financial assistance programs for housing,
redevelopment and related needs (such as low-income housing programs and urban
renewal programs). Although they are the primary obligations
of the local public housing agencies or local urban renewal agencies, the HUD
agreement provides for the additional security of the full faith and
credit of the U.S. government. Payment by the United States pursuant to its full
faith and credit obligation does not impair the tax-exempt character
of the income from project notes.
Construction
Loan Notes.
Construction loan notes are sold to provide construction financing. Permanent
financing, the proceeds of which are applied to the
payment of construction loan notes, is sometimes provided by a commitment by
GNMA to purchase the loan, accompanied by a commitment by the Federal
Housing Administration to insure mortgage advances thereunder. In other
instances, permanent financing is provided by the commitments of banks to
purchase the loan.
Municipal
Commercial Paper. Municipal
commercial paper is a short-term obligation of a municipality, generally issued
at a discount with a maturity of
less than one year. Such paper is likely to be issued to meet seasonal working
capital needs of a municipality or interim construction financing.
Municipal commercial paper is backed in many cases by letters of credit, lending
agreements, note repurchase agreements or other credit facility
agreements offered by banks and other institutions.
Participation
Interests
Participation
interests, that may take the form of interests in, or assignments of certain
loans, are acquired from banks that have made these loans or are members
of a lending syndicate. The fund’s investments in participation interests are
subject to its 15% limitation on investments in illiquid securities.
Preferred
Stocks
Preferred
stock generally has a preference to dividends and, upon liquidation, over an
issuer’s common stock but ranks junior to debt securities in an issuer’s
capital structure. Preferred stock generally pays dividends in cash (or
additional shares of preferred stock) at a defined rate but, unlike interest
payments on debt securities, preferred stock dividends are payable only if
declared by the issuer’s board of directors. Dividends on preferred stock may
be cumulative, meaning that, in the event the issuer fails to make one or more
dividend payments on the preferred stock, no dividends may
be paid on
the issuer’s common stock until all unpaid preferred stock dividends have been
paid. Preferred stock also may be subject to optional or mandatory
redemption provisions.
Repurchase
Agreements, Reverse Repurchase Agreements, and Sale-Buybacks
Repurchase
agreements are arrangements involving the purchase of an obligation and the
simultaneous agreement to resell the same obligation on demand or
at a specified future date and at an agreed-upon price. A repurchase agreement
can be viewed as a loan made by a fund to the seller of the obligation
with such obligation serving as collateral for the seller’s agreement to repay
the amount borrowed with interest. Repurchase agreements provide the
opportunity to earn a return on cash that is only temporarily available.
Repurchase agreements may be entered with banks, brokers, or dealers.
However, a repurchase agreement will only be entered with a broker or dealer if
the broker or dealer agrees to deposit additional collateral should the
value of the obligation purchased decrease below the resale price.
Generally,
repurchase agreements are of a short duration, often less than one week but on
occasion for longer periods. Securities subject to repurchase
agreements will be valued every business day and additional collateral will be
requested if necessary so that the value of the collateral is at least equal
to the value of the repurchase obligation, including the interest accrued
thereon.
A
subadvisor shall engage in a repurchase agreement transaction only with those
banks or broker dealers who meet the subadvisor’s quantitative and qualitative
criteria regarding creditworthiness, asset size and collateralization
requirements. The Advisor also may engage in repurchase agreement transactions
on behalf of the funds. The counterparties to a repurchase agreement transaction
are limited to a:
• |
Federal
Reserve System member bank; |
• |
primary
government securities dealer reporting to the Federal Reserve Bank of New
York’s Market Reports Division; or |
• |
broker
dealer that reports U.S. government securities positions to the Federal
Reserve Board. |
A fund also
may participate in repurchase agreement transactions utilizing the settlement
services of clearing firms that meet the subadvisors’ creditworthiness
requirements.
The Advisor
and the subadvisors will continuously monitor repurchase agreement transactions
to ensure that the collateral held with respect to a repurchase
agreement equals or exceeds the amount of the obligation.
The risk of
a repurchase agreement transaction is limited to the ability of the seller to
pay the agreed-upon sum on the delivery date. In the event of bankruptcy
or other default by the seller, the instrument purchased may decline in value,
interest payable on the instrument may be lost and there may be possible
difficulties and delays in obtaining collateral and delays and expense in
liquidating the instrument. If an issuer of a repurchase agreement fails to
repurchase the underlying obligation, the loss, if any, would be the difference
between the repurchase price and the underlying obligation’s market
value. A fund also might incur certain costs in liquidating the underlying
obligation. Moreover, if bankruptcy or other insolvency proceedings are
commenced with respect to the seller, realization upon the underlying obligation
might be delayed or limited.
Under a
reverse repurchase agreement, a fund sells a debt security and agrees to
repurchase it at an agreed-upon time and at an agreed-upon price. The fund
retains record ownership of the security and the right to receive interest and
principal payments thereon. At an agreed-upon future date, the fund
repurchases the security by remitting the proceeds previously received, plus
interest. The difference between the amount the fund receives for the
security and the amount it pays on repurchase is payment of interest. In certain
types of agreements, there is no agreed-upon repurchase date and interest
payments are calculated daily, often based on the prevailing overnight
repurchase rate. A reverse repurchase agreement may be considered a form of
leveraging and may, therefore, increase fluctuations in a fund’s NAV per share.
Subject to the requirements noted under “Risk of Additional Government
Regulation of Derivatives” and “Use of Segregated and Other Special Accounts,” a
fund will cover its repurchase agreement transactions by
maintaining in a segregated custodial account cash, Treasury bills, other U.S.
government securities, or other liquid assets having an aggregate value at
least equal to the amount of such commitment to repurchase including accrued
interest, until payment is made.
No fund
will enter into reverse repurchase agreements and other borrowings except from
banks as a temporary measure for extraordinary emergency purposes in
amounts not to exceed 33 1/3% of the fund’s total assets (including the amount
borrowed) taken at market value. The funds will not use leverage to
attempt to increase total return. The funds will enter into reverse repurchase
agreements only with federally insured banks that are approved in
advance as being creditworthy by the Trustees. Under procedures established by
the Trustees, the subadvisor will monitor the creditworthiness
of the banks involved.
A fund may
effect simultaneous purchase and sale transactions that are known as
“sale-buybacks.” A sale-buyback is similar to a reverse repurchase agreement,
except that in a sale-buyback, the counterparty that purchases the security is
entitled to receive any principal or interest payments made on the
underlying security pending settlement of the fund’s repurchase of the
underlying security. A fund’s obligations under a sale-buyback typically
would be
offset by liquid assets equal in value to the amount of the fund’s forward
commitment to repurchase the subject security.
Foreign
Repurchase Agreements. Foreign
repurchase agreements involve an agreement to purchase a foreign security and to
sell that security back to the
original seller at an agreed-upon price in either U.S. dollars or foreign
currency. Unlike typical U.S. repurchase agreements, foreign repurchase
agreements may not be fully collateralized at all times. The value of a security
purchased may be more or less than the price at which the counterparty
has agreed to repurchase the security. In the event of default by the
counterparty, a fund may suffer a loss if the value of the security purchased
is less than the agreed-upon repurchase price, or if it is unable to
successfully assert a claim to the collateral under foreign laws. As a
result,
foreign repurchase agreements may involve higher credit risks than repurchase
agreements in U.S. markets, as well as risks associated with currency
fluctuations. In addition, as with other emerging market investments, repurchase
agreements with counterparties located in emerging markets, or
relating to emerging markets, may involve issuers or counterparties with lower
credit ratings than typical U.S. repurchase agreements.
Short
Sales
A fund may
engage in short sales and short sales “against the box.” In a short sale against
the box, a fund borrows securities from a broker-dealer and sells the
borrowed securities, and at all times during the transaction, a fund either owns
or has the right to acquire the same securities at no extra cost. If
the price of the security has declined at the time a fund is required to deliver
the security, a fund will benefit from the difference in the price. If
the price
of a security has increased, the funds will be required to pay the
difference.
In
addition, a fund may sell a security it does not own in anticipation of a
decline in the market value of that security (a “short sale”). To
complete such a
transaction, a fund must borrow the security to make delivery to the buyer. The
fund is then obligated to replace the security borrowed by purchasing
it at
market price at the time of replacement. The price at such time may be more or
less than the price at which the security was sold by the fund. Until the
security is replaced, the fund is required to pay the lender any dividends or
interest which accrues during the period of the loan. To borrow the security,
the fund also may be required to pay a premium, which would increase the cost of
the security sold. The proceeds of the short sale are typically
retained by the broker to meet margin requirements until the short position is
closed out. Subject to the requirements noted under “Risk of Additional
Government Regulation of Derivatives” and “Use of Segregated and Other Special
Accounts,” until a fund replaces a borrowed security, it will segregate
with its custodian cash or other liquid assets at such a level that the amount
segregated plus the amount deposited with the broker as collateral
(generally not including proceeds from the short sales) will equal the current
value of the security sold short. Except for short sales against-the-box,
the amount of a fund’s net assets that may be committed to short sales is
limited and the securities in which short sales are made must be listed on a
national securities exchange.
A fund will
incur a loss as a result of the short sale if the price of the security
increases between the date of the short sale and the date on which the
fund
replaced the borrowed security and theoretically the fund’s loss could be
unlimited. A fund will generally realize a gain if the security declines in
price
between those dates. This result is the opposite of what one would expect from a
cash purchase of a long position in a security. The amount of any gain
will be decreased, and the amount of any loss increased, by the amount of any
premium, dividends or interest the fund may be required to pay in
connection with a short sale. Short selling may amplify changes in a fund’s NAV.
Short selling also may produce higher than normal portfolio turnover,
which may result in increased transaction costs to a fund.
Short-Term
Trading
Short-term
trading means the purchase and subsequent sale of a security after it has been
held for a relatively brief period of time. If and to the extent consistent
with and permitted by its investment objective and policies, a fund may engage
in short-term trading in response to stock market conditions,
changes in interest rates or other economic trends and developments, or to take
advantage of yield disparities between various fixed-income
securities in order to realize capital gains or improve income. Short-term
trading may have the effect of increasing portfolio turnover rate. A
high rate
of portfolio turnover (100% or greater) involves correspondingly greater
brokerage transaction expenses and may make it more difficult for a fund to
qualify as a RIC for federal income tax purposes (for additional information
about qualification as a RIC under the Code, see “Additional Information
Concerning Taxes” in this SAI). See “Portfolio Turnover.”
Sovereign
Debt Obligations
Sovereign
debt obligations are issued or guaranteed by foreign governments or their
agencies. Sovereign debt may be in the form of conventional securities
or other types of debt instruments such as loan or loan participations.
Typically, sovereign debt of developing countries may involve a high
degree of
risk and may be in default or present the risk of default, however, sovereign
debt of developed countries also may involve a high degree of risk and
may be in default or present the risk of default. Governments rely on taxes and
other revenue sources to pay interest and principal on their debt
obligations, and governmental entities responsible for repayment of the debt may
be unable or unwilling to repay principal and pay interest when due and may
require renegotiation or rescheduling of debt payments. The payment of principal
and interest on these obligations may be adversely affected by
a variety of factors, including economic results, changes in interest and
exchange rates, changes in debt ratings, a limited tax base or limited
revenue sources, natural disasters, or other economic or credit problems. In
addition, prospects for repayment and payment of interest may depend on
political as well as economic factors. Defaults in sovereign debt obligations,
or the perceived risk of default, also may impair the market for other
securities and debt instruments, including securities issued by banks and other
entities holding such sovereign debt, and negatively impact the funds.
U.S.
Government and Government Agency Obligations
U.S.
Government Obligations. U.S.
government obligations are debt securities issued or guaranteed as to principal
or interest by the U.S. Treasury. These
securities include treasury bills, notes and bonds.
GNMA
Obligations. GNMA
obligations are mortgage-backed securities guaranteed by the GNMA, which
guarantee is supported by the full faith and credit of
the U.S. government.
U.S.
Agency Obligations. U.S.
government agency obligations are debt securities issued or guaranteed as to
principal or interest by an agency or instrumentality
of the U.S. government pursuant to authority granted by Congress. U.S.
government agency obligations include, but are not limited to:
U.S.
Instrumentality Obligations. U.S.
instrumentality obligations include, but are not limited to, those issued by the
Export-Import Bank and Farmers
Home Administration.
Some
obligations issued or guaranteed by U.S. government agencies or
instrumentalities are supported by the right of the issuer to borrow from the
U.S.
Treasury or the Federal Reserve Banks, such as those issued by FICBs. Others,
such as those issued by Fannie Mae, FHLBs and Freddie Mac, are supported
by discretionary authority of the U.S. government to purchase certain
obligations of the agency or instrumentality. In addition, other obligations,
such as those issued by the SLMA, are supported only by the credit of the agency
or instrumentality. There also are separately traded interest
components of securities issued or guaranteed by the U.S. Treasury.
No
assurance can be given that the U.S. government will provide financial support
for the obligations of such U.S. government-sponsored agencies or instrumentalities
in the future, since it is not obligated to do so by law. In this SAI, “U.S.
government securities” refers not only to securities issued or guaranteed
as to principal or interest by the U.S. Treasury but also to securities that are
backed only by their own credit and not the full faith and credit of the U.S.
government.
It is
possible that the availability and the marketability (liquidity) of the
securities discussed in this section could be adversely affected by actions of
the U.S.
government to tighten the availability of its credit. In 2008, FHFA, an agency
of the U.S. government, placed Fannie Mae and Freddie Mac into conservatorship,
a statutory process with the objective of returning the entities to normal
business operations. The FHFA will act as the conservator to operate
Fannie Mae and Freddie Mac until they are stabilized. It is unclear what effect
this conservatorship will have on the securities issued or guaranteed
by Fannie Mae or Freddie Mac.
Variable
and Floating Rate Obligations
Investments
in floating or variable rate securities normally will involve industrial
development or revenue bonds, which provide that the rate of interest
is set as a
specific percentage of a designated base rate, such as rates of Treasury Bonds
or Bills or the prime rate at a major commercial bank. In addition, a
bondholder can demand payment of the obligations on behalf of the investing fund
on short notice at par plus accrued interest, which amount may
be more or less than the amount the bondholder paid for them. The maturity of
floating or variable rate obligations (including participation
interests therein) is deemed to be the longer of: (i) the notice period required
before a fund is entitled to receive payment of the obligation upon
demand; or (ii) the period remaining until the obligation’s next interest rate
adjustment. If not redeemed by the investor through the demand feature,
the obligations mature on a specified date, which may range up to thirty years
from the date of issuance.
Warrants
Warrants
may trade independently of the underlying securities. Warrants are rights to
purchase securities at specific prices and are valid for a specific period of
time. Warrant prices do not necessarily move parallel to the prices of the
underlying securities, and warrant holders receive no dividends and have no
voting rights or rights with respect to the assets of an issuer. The price of a
warrant may be more volatile than the price of its underlying security,
and a warrant may offer greater potential for capital appreciation as well as
capital loss. Warrants cease to have value if not exercised prior to
the
expiration date. These factors can make warrants more speculative than other
types of investments.
When-Issued/Delayed
Delivery/Forward Commitment Securities
When-issued,
delayed-delivery or forward-commitment transactions involve a commitment to
purchase or sell securities at a predetermined price or yield in
which payment and delivery take place after the customary settlement for such
securities (which is typically one month or more after trade date). When
purchasing securities in one of these types of transactions, payment for the
securities is not required until the delivery date, however, the purchaser
assumes the rights and risks of ownership, including the risks of price and
yield fluctuations and the risk that the security will not be delivered.
When a fund has sold securities pursuant to one of these transactions, it will
not participate in further gains or losses with respect to that security.
At the time of delivery, the value of when-issued, delayed-delivery or forward
commitment securities may be more or less than the transaction price, and
the yields then available in the market may be higher or lower than those
obtained in the transaction.
Under
normal circumstances, when a fund purchases securities on a when-issued or
forward commitment basis, it will take delivery of the securities, but a fund
may, if deemed advisable, sell the securities before the settlement date.
Forward contracts may settle in cash between the counterparty and the
fund or by physical settlement of the underlying securities, and a fund may
renegotiate or roll over a forward commitment transaction. In general, a
fund does not pay for the securities, or start earning interest on them, or
deliver or take possession of securities until the obligations are scheduled
to be settled. In such transactions, no cash changes hands on the trade date,
however, if the transaction is collateralized, the exchange of margin may
take place between the fund and the counterparty according to an agreed-upon
schedule. A fund does, however, record the transaction and reflect
the value each day of the securities in determining its NAV.
Subject to
the requirements noted under “Risk of Additional Government Regulation of
Derivatives” and “Use of Segregated and Other Special Accounts,”
while awaiting settlement of the obligations purchased or sold on such basis, a
fund will maintain on its records liquid assets consisting of cash,
liquid high quality debt obligations or other assets equal to the amount of the
commitments to purchase or sell when-issued, delayed-delivery or forward
commitment securities. The availability of liquid assets for this purpose and
the effect of asset segregation on a fund’s ability to meet its current
obligations, to honor requests for redemption, and to otherwise manage its
investment portfolio will limit the extent to which the fund may purchase
when-issued or forward commitment securities.
Yield
Curve Notes
Inverse
floating rate securities include, but are not limited to, an inverse floating
rate class of a government agency-issued yield curve note. A yield curve note
is a fixed-income security that bears interest at a floating rate that is reset
periodically based on an interest rate benchmark. The interest rate resets
on a yield curve note in the opposite direction from the interest rate
benchmark.
Zero
Coupon Securities, Deferred Interest Bonds and Pay-In-Kind
Bonds
Zero coupon
securities, deferred interest bonds and pay-in-kind bonds involve special risk
considerations. Zero coupon securities and deferred interest
bonds are debt securities that pay no cash income but are sold at substantial
discounts from their value at maturity. While zero coupon bonds do not
require the periodic payment of interest, deferred interest bonds provide for a
period of delay before the regular payment of interest begins. When a zero
coupon security or a deferred interest bond is held to maturity, its entire
return, which consists of the amortization of discount, comes from the
difference between its purchase price and its maturity value. This difference is
known at the time of purchase, so that investors holding these securities
until maturity know at the time of their investment what the return on their
investment will be. Pay-in-kind bonds are bonds that pay all or a portion of
their interest in the form of debt or equity securities.
Zero coupon
securities, deferred interest bonds and pay-in-kind bonds are subject to greater
price fluctuations in response to changes in interest rates than
ordinary interest-paying debt securities with similar maturities. The value of
zero coupon securities and deferred interest bonds usually appreciates
during periods of declining interest rates and usually depreciates during
periods of rising interest rates.
|
Issuers
of Zero Coupon Securities and Pay-In-Kind Bonds. Zero
coupon securities and pay-in-kind bonds may be issued by a wide variety of
corporate
and governmental issuers. Although zero coupon securities and pay-in-kind
bonds are generally not traded on a national securities exchange,
these securities are widely traded by brokers and dealers and, to the
extent they are widely traded, will not be considered illiquid for the
purposes
of the investment restriction under “Illiquid
Securities.” |
|
Tax
Considerations.
Current federal income tax law requires the holder of a zero coupon
security or certain pay-in-kind bonds to accrue income with
respect to these securities prior to the receipt of cash payments. To
maintain its qualification as a RIC under the Code and avoid liability for
federal
income and excise taxes, a fund may be required to distribute income
accrued with respect to these securities and may have to dispose of
portfolio
securities under disadvantageous circumstances in order to generate cash
to satisfy these distribution
requirements. |
RISK
FACTORS
The risks
of investing in certain types of securities are described below. Risks are only
applicable to a fund if and to the extent that corresponding investments,
or indirect exposures to such investments through derivative contracts, are
consistent with and permitted by the fund’s investment objectives
and policies. The value of an individual security or a particular type of
security can be more volatile than the market as a whole and can perform
differently than the value of the market as a whole. By owning shares of the
underlying funds, each fund of funds indirectly invests in the securities
and instruments held by the underlying funds and bears the same risks of such
underlying funds.
Cash
Holdings Risk
A fund may
be subject to delays in making investments when significant purchases or
redemptions of fund shares cause the fund to have an unusually large cash
position. When the fund has a higher than normal cash position, it may incur
“cash drag,” which is the opportunity cost of holding a significant
cash position. This significant cash position might cause the fund to miss
investment opportunities it otherwise would have benefited from if fully
invested, or might cause the fund to pay more for investments in a rising
market, potentially reducing fund performance.
Collateralized
Debt Obligations
The risks
of an investment in a CDO depend largely on the quality of the collateral
securities and the class of the instrument in which a fund invests. Normally,
CDOs are privately offered and sold, and thus, are not registered under the
securities laws. As a result, investments in CDOs may be characterized
by a fund as illiquid, however an active dealer market may exist for CDOs
allowing them to qualify for treatment as liquid under Rule 144A
transactions. In addition to the normal risks associated with fixed-income
securities discussed elsewhere in this SAI and the Prospectus (e.g.,
interest
rate risk and default risk), CDOs carry risks including, but are not limited to
the possibility that: (i) distributions from collateral securities will
not be
adequate to make interest or other payments; (ii) the quality of the collateral
may decline in value or default; (iii) a fund may invest in CDO classes
that are subordinate to other classes of the CDO; and (iv) the complex structure
of the CDO may not be fully understood at the time of investment
and may produce disputes with the issuer or unexpected investment
results.
Equity
Securities
Equity
securities include common, preferred and convertible preferred stocks and
securities the values of which are tied to the price of stocks, such as
rights,
warrants and convertible debt securities. Common and preferred stocks represent
equity ownership in a company. Stock markets are volatile. The price
of equity securities will fluctuate and can decline and reduce the value of a
fund’s investment in equities. The price of equity securities fluctuates
based on changes in a company’s financial condition and overall market and
economic conditions. The value of equity securities purchased by a fund
could decline if the financial condition of the issuers of these securities
declines or if overall market and economic conditions deteriorate. Even funds
that invest in high quality or “blue chip” equity securities or securities of
established companies with large market capitalizations (which generally
have strong financial characteristics) can be negatively impacted by poor
overall market and economic conditions. Companies with large market
capitalizations also may have less growth potential than smaller companies and
may be able to react less quickly to change in the marketplace.
ESG
Integration Risk
Certain
subadvisors may integrate research on environmental, social and governance
(“ESG”) factors into a fund’s investment process. Such
subadvisors
may consider ESG factors that it deems relevant or additive, along with other
material factors and analysis, when managing
a fund. ESG
factors may
include, but are not limited to, matters regarding board diversity, climate
change policies, and supply chain and human rights policies.
Incorporating
ESG criteria and making
investment decisions based on certain
ESG characteristics, as determined by a subadvisor, carries the risk that
a fund may
perform differently, including underperforming, funds that do not utilize ESG
criteria,
or funds that utilize different ESG criteria. Integration
of ESG
factors into a fund’s investment process may result in a subadvisor making
different investment
decisions for a fund
than for a fund with a similar
investment universe and/or investment style that does not incorporate such
considerations in its investment strategy or processes, and a fund’s
investment performance may be affected.
Integration of ESG factors into a fund’s investment process does not preclude a
fund from including companies
with low ESG scores or excluding companies with high ESG scores in a fund’s
investments.
The ESG
characteristics utilized in a fund’s investment process may change over time,
and different ESG characteristics may be relevant to different investments.
Successful integration of ESG factors will depend on a subadvisor’s skill in
researching,
identifying, and applying these factors, as well as
on
the
availability of relevant data. The method of evaluating ESG factors and
subsequent impact on portfolio composition, performance, proxy voting
decisions
and other factors, is subject to the interpretation of a subadvisor in
accordance with the fund’s investment objective and strategies. ESG factors may
be evaluated differently by different subadvisors, and may not carry the same
meaning to all investors and subadvisors. The
regulatory landscape
with respect to ESG investing in the United States is evolving and any future
rules or regulations may require a fund to change its investment process
with respect to ESG integration.
European
Risk
Countries
in Europe may be significantly affected by fiscal and monetary controls
implemented by the EU and EMU, which require member countries to comply with
restrictions on inflation rates, deficits, interest rates, debt levels and
fiscal and monetary controls. Decreasing imports or exports, changes in
governmental or other regulations on trade, changes in the exchange rate or
dissolution of the Euro, the default or threat of default by one or more EU
member countries on its sovereign debt, and/or an economic recession in one or
more EU member countries may have a significant adverse
effect on other European economies and major trading partners outside
Europe.
In recent
years, the European financial markets have experienced volatility and adverse
trends due to concerns about economic downturns, rising government
debt levels and the possible default of government debt in several European
countries. The European Central Bank and IMF have previously
bailed-out several European countries. There is no guarantee that these
institutions will continue to provide financial support, and markets
may react
adversely to any reduction in financial support. A default or debt restructuring
by any European country can adversely impact holders of that country’s
debt and sellers of credit default swaps linked to that country’s
creditworthiness, which may be located in countries other than those listed
above, and
can affect exposures to other EU countries and their financial companies as
well.
Uncertainties
surrounding
the sovereign debt of a number of EU countries and the viability
of the EU have disrupted
and may in the future disrupt markets in
the United States and around the world. If one or more countries leave the EU or
the EU dissolves, the global
securities
markets likely
will
be
significantly disrupted. On January 31, 2020, the UK left the EU, commonly
referred to as “Brexit,” and the UK ceased to be a member of the EU.
Following a
transition period during which the EU and the UK Government engaged in a series
of negotiations regarding the terms of the UK’s future relationship
with the EU, the EU and the UK Government signed an agreement on December 30,
2020 regarding the economic relationship between the UK and
the EU. This agreement became effective on a provisional basis on January 1,
2021 and
formally entered into force on May 1, 2021. While the full
impact of Brexit is unknown, Brexit has already resulted in volatility in
European and global markets. There
remains significant market uncertainty
regarding Brexit’s ramifications, and the range and potential implications of
possible political, regulatory, economic, and market outcomes
are difficult to predict. The
uncertainty resulting from the transition period may affect
other countries in the EU and elsewhere, cause
volatility
within the EU, or trigger
prolonged
economic downturns in certain countries within the EU. It is also possible that
various countries within the UK, such as
Scotland or Northern Ireland, could seek to separate and remain a part of the
EU. Other secessionist movements including countries seeking to
abandon the Euro or withdraw from the EU may cause volatility and uncertainty in
the EU.
The UK has
one of the largest economies in Europe and is a major trading partner with the
EU
countries and the United States. Brexit might negatively affect The
City of London’s economy, which is heavily dominated by financial services, as
banks might be forced to move staff and comply with two separate
sets of rules or lose business to banks in Continental Europe. In addition,
Brexit may create additional and substantial economic stresses for the UK,
including a contraction of the UK economy and price volatility in UK stocks,
decreased trade, capital outflows, devaluation of the British pound,
wider
corporate bond spreads due to uncertainty and declines in business and consumer
spending as well as foreign direct investment. Brexit may also
adversely affect UK-based financial firms that have counterparties in the EU or
participate in market infrastructure (trading venues, clearing houses,
settlement facilities) based in the EU. Additionally,
the spread of the coronavirus (COVID-19) pandemic is likely to continue to
stretch the resources
and deficits of many countries in the EU and throughout the world, increasing
the possibility that countries may be unable to make payments on
their sovereign debt. These
events and the resulting market volatility may have an adverse effect on the
performance of the fund.
Investing
in the securities of Eastern European issuers is highly speculative and involves
risks not usually associated with investing in the more developed
markets of Western Europe. Securities markets of Eastern European countries
typically are less efficient and have lower trading volume, lower
liquidity, and higher volatility than more developed markets. Eastern European
economies also may be particularly susceptible to disruption in the
international credit market due to their reliance on bank related inflows of
capital.
To the
extent that a fund invests in European securities, it may be exposed to these
risks through its direct investments in such securities, including sovereign
debt, or indirectly through investments in money market funds and financial
institutions with significant investments in such securities. In addition,
Russia’s increasing international assertiveness could negatively impact EU and
Eastern European economic activity. Please see
“Market Events” for
additional information regarding risks related to sanctions imposed on
Russia.
Fixed-Income
Securities
Fixed-income
securities are generally subject to two principal types of risk: (1)
interest-rate risk; and (2) credit quality risk. Fixed-income securities are
also
subject to liquidity risk.
Interest
Rate Risk.
Fixed-income securities are affected by changes in interest rates. When interest
rates decline, the market value of the fixed-income
securities generally can be expected to rise. Conversely, when interest rates
rise, the market value of fixed-income securities generally can be expected to
decline. Recent and potential future changes in government monetary policy may
affect interest
rates. A sharp and
unexpected rise in interest
rates could impair Money Market Fund’s ability to maintain a stable net asset
value. A low interest rate environment may prevent Money Market Fund
from providing a positive yield to shareholders or paying fund expenses out of
fund assets and could impair the fund’s ability to maintain a stable net
asset value.
The longer
a fixed-income security’s duration, the more sensitive it will be to changes in
interest rates. Similarly, a fund with a longer average portfolio duration
will be more sensitive to changes in interest rates than a fund with a shorter
average portfolio duration. Duration is a measure used to determine
the sensitivity of a security’s price to changes in interest rates that
incorporates a security’s yield, coupon, final maturity, and call features,
among other
characteristics. All other things remaining equal, for each one percentage point
increase in interest rates, the value of a portfolio of fixed-income
investments would generally be expected to decline by one percent for every year
of the portfolio’s average duration above zero. For example, the price
of a bond fund with an average duration of eight years would be expected to fall
approximately 8% if interest rates rose by one percentage point. The
maturity of a security, another commonly used measure of price sensitivity,
measures only the time until final payment is due, whereas duration
takes into account the pattern of all payments of interest and principal on a
security over time, including how these payments are affected by prepayments
and by changes in interest rates, as well as the time until an interest rate is
reset (in the case of variable-rate securities).
The
fixed-income securities market has been and may continue to be negatively
affected by the coronavirus
(COVID-19) pandemic. As with other serious
economic disruptions, governmental authorities and regulators responded
with
significant fiscal and monetary policy changes, including considerably
lowering interest rates, which, in some cases could result in negative interest
rates. These actions, including their possible unexpected or sudden
reversal or potential ineffectiveness, could further increase volatility in
securities and other financial markets and reduce market liquidity. To
the extent
the fund has a bank deposit or holds a debt instrument with a negative interest
rate to maturity, the fund would generate a negative return on that
investment. Similarly, negative rates on investments by money market funds and
similar cash management products could lead to losses on investments,
including on investments of the fund’s uninvested cash. When the
Fed “tapers” or reduces the amount of securities it purchases pursuant
to its
quantitative easing program, and/or raises the federal funds rate, there is a
risk that interest rates will rise, which could expose fixed-income and
related
markets to heightened volatility and could cause the value of a fund’s
investments, and the fund’s NAV, to decline, potentially suddenly and
significantly,
which may negatively impact the fund’s performance.
Credit
Quality Risk.
Fixed-income securities are subject to the risk that the issuer of the security
will not repay all or a portion of the principal borrowed
and will not make all interest payments. If the credit quality of a fixed-income
security deteriorates after a fund has purchased the security, the market
value of the security may decrease and lead to a decrease in the value of the
fund’s investments. Funds that may invest in lower rated fixed-income
securities are riskier than funds that may invest in higher rated fixed-income
securities.
Liquidity
Risk. Liquidity
risk may result from the lack of an active market, the reduced number of
traditional market participants, or the reduced capacity of
traditional market participants to make a market in fixed-income securities. The
capacity of traditional dealers to engage in fixed-income trading has
not kept pace with the bond market’s growth. As a result, dealer inventories of
corporate bonds, which indicate the ability to “make markets,”
i.e., buy or sell a security at the quoted bid and ask price, respectively, are
at or near historic lows relative to market size. Because market makers
provide stability to fixed-income markets, the significant reduction in dealer
inventories could lead to decreased liquidity and increased volatility,
which may become exacerbated during periods of economic or political stress. In
addition, liquidity risk may be magnified in a rising interest rate
environment in which investor redemptions from fixed-income funds may be higher
than normal; the selling of fixed-income securities to satisfy shareholder
redemptions may result in an increased supply of such securities during periods
of reduced investor demand due to a lack of buyers, thereby
impairing the fund’s ability to sell such securities. The secondary market for
certain tax-exempt securities tends to be less well-developed or liquid than
many other securities markets, which may adversely affect a fund’s ability to
sell such securities at attractive prices.
Floating
Rate Loans Risk
Floating
rate loans are generally rated below investment-grade, or if unrated, determined
by the manager to be of comparable quality. They are generally
considered speculative because they present a greater risk of loss, including
default, than higher quality debt instruments. Such investments may, under
certain circumstances, be particularly susceptible to liquidity and valuation
risks. Although certain floating rate loans are collateralized, there is no
guarantee that the value of the collateral will be sufficient or available to
satisfy the borrower’s obligation. In times of unusual or adverse market,
economic or political conditions, floating rate loans may experience higher than
normal default rates. In the event of a serious credit event the value of
the fund’s investments in floating rate loans are more likely to decline. The
secondary market for floating rate loans is limited and, therefore, the fund’s
ability to sell or realize the full value of its investment in these loans to
reinvest sale proceeds or to meet redemption obligations may be impaired.
In addition, floating rate loans generally are subject to extended settlement
periods that may be longer than seven days. As a result, the fund may be
adversely affected by selling other investments at an unfavorable time and/or
under unfavorable conditions to meet redemption requests or pursue
other investment opportunities. In addition, certain floating rate loans may be
“covenant-lite” loans that may contain fewer or less restrictive covenants
on the borrower or may contain other borrower-friendly characteristics. The fund
may experience relatively greater difficulty or delays in enforcing
its rights on its holdings of certain covenant-lite loans and debt securities
than its holdings of loans or securities with the usual
covenants.
In certain
circumstances, floating rate loans may not be deemed to be securities. As a
result, the fund may not have the protection of the anti-fraud provisions
of the federal securities laws. In such cases, the fund generally must rely on
the contractual provisions in the loan agreement and common-law fraud
protections under applicable state law.
Foreign
Securities
Currency
Fluctuations.
Investments in foreign securities may cause a fund to lose money when converting
investments from foreign currencies into U.S.
dollars. A fund may attempt to lock in an exchange rate by purchasing a foreign
currency exchange contract prior to the settlement of an investment
in a foreign security. However, the fund may not always be successful in doing
so, and it could still lose money.
Political
and Economic Conditions.
Investments in foreign securities subject a fund to the political or economic
conditions of the foreign country. These
conditions could cause a fund’s investments to lose value if these conditions
deteriorate for any reason. This risk increases in the case of emerging
market countries which are more likely to be politically unstable. Political
instability could cause the value of any investment in the securities
of an
issuer based in a foreign country to decrease or could prevent or delay a fund
from selling its investment and taking the money out of the
country.
Removal
of Proceeds of Investments from a Foreign Country. Foreign
countries, especially emerging market countries, often have currency
controls or
restrictions that may prevent or delay a fund from taking money out of the
country or may impose additional taxes on money removed from the
country. Therefore, a fund could lose money if it is not permitted to remove
capital from the country or if there is a delay in taking the assets out of
the
country, since the value of the assets could decline during this period, or the
exchange rate to convert the assets into U.S. dollars could worsen.
Nationalization
of Assets.
Investments in foreign securities subject a fund to the risk that the company
issuing the security may be nationalized. If the company
is nationalized, the value of the company’s securities could decrease in value
or even become worthless.
Settlement
of Sales. Foreign
countries, especially emerging market countries, also may have problems
associated with settlement of sales. Such problems
could cause a fund to suffer a loss if a security to be sold declines in value
while settlement of the sale is delayed.
Investor
Protection Standards. Foreign
countries, especially emerging market countries, may have less stringent
investor protection and disclosure standards
than the U.S. Therefore, when making a decision to purchase a security for a
fund, a subadvisor may not be aware of problems associated with the
company issuing the security and may not enjoy the same legal rights as those
provided in the U.S.
Securities
of Emerging Market Issuers or Countries. The risks
described above apply to an even greater extent to investments in emerging
markets.
The securities markets of emerging countries are generally smaller, less
developed, less liquid, and more volatile than the securities markets
of the
United States and developed foreign countries. In addition, the securities
markets of emerging countries may be subject to a lower level of monitoring
and regulation. Government enforcement of existing securities regulations also
has been extremely limited, and any such enforcement may be
arbitrary and the results difficult to predict with any degree of certainty.
Many emerging countries have experienced substantial, and in some periods
extremely high, rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have very
negative
effects on the economies and securities markets of some emerging countries.
Economies in emerging markets generally are heavily dependent
upon international trade and, accordingly, have been and may continue to be
affected adversely by trade barriers, exchange controls, managed
adjustments in relative currency values, and other protectionist measures
imposed or negotiated by the countries with which they trade. Economies
in emerging markets also have been and may continue to be adversely affected by
economic conditions in the countries with which they trade. The
economies of countries with emerging markets also may be predominantly based on
only a few industries or dependent on revenues from particular
commodities. In many cases, governments of emerging market countries continue to
exercise significant control over their economies, and government
actions relative to the economy, as well as economic developments generally, may
affect the capacity of issuers of debt instruments to make
payments on their debt obligations, regardless of their financial
condition.
Restrictions
on Investments. There may
be unexpected restrictions on investments in companies located in certain
foreign countries. For example, on November
12, 2020, the President of the United States signed an Executive Order
prohibiting U.S. persons from purchasing or investing in publicly-traded
securities of companies identified by the U.S. government as “Communist Chinese
military companies,” or in instruments that are derivative
of, or are designed to provide investment exposure to, such securities. In
addition, to the extent that a fund holds such a security, one or more fund
intermediaries may decline to process customer orders with respect to such fund
unless and until certain representations are made by the fund or the
prohibited holdings are divested. As a result of forced sales of a security, or
inability to participate in an investment the manager otherwise believes is
attractive, a fund may incur losses.
Gaming-Tribal
Authority Investments
The value
of a fund’s investments in securities issued by gaming companies, including
gaming facilities operated by Indian (Native American) tribal authorities,
is subject to legislative or regulatory changes, adverse market conditions,
and/or increased competition affecting the gaming sector. Securities
of gaming companies may be considered speculative, and generally exhibit greater
volatility than the overall market. The market value of gaming
company securities may fluctuate widely due to unpredictable earnings, due in
part to changing consumer tastes and intense competition, strong
reaction to technological developments, and the threat of increased government
regulation.
Securities
issued by Indian tribal authorities are subject to particular risks. Indian
tribes enjoy sovereign immunity, which is the legal privilege by which
the United
States federal, state, and tribal governments cannot be sued without their
consent. In order to sue an Indian tribe (or an agency or instrumentality
thereof), the tribe must have effectively waived its sovereign immunity with
respect to the matter in dispute. Certain Indian tribal authorities
have agreed to waive their sovereign immunity in connection with their
outstanding debt obligations. Generally, waivers of sovereign immunity
have been held to be enforceable against Indian tribes. Nevertheless, if a
waiver of sovereign immunity is held to be ineffective, claimants, including
investors in Indian tribal authority securities (such as a fund), could be
precluded from judicially enforcing their rights and
remedies.
Further, in
most commercial disputes with Indian tribes, it may be difficult or impossible
to obtain federal court jurisdiction. A commercial dispute may not present
a federal question, and an Indian tribe may not be considered a citizen of any
state for purposes of establishing diversity jurisdiction. The U.S.
Supreme Court has held that jurisdiction in a tribal court must be exhausted
before any dispute can be heard in an appropriate federal court. In cases where
the jurisdiction of the tribal forum is disputed, the tribal court first must
rule as to the limits of its own jurisdiction. Such jurisdictional issues, as
well as the general view that Indian tribes are not considered to be subject to
ordinary bankruptcy proceedings, may be disadvantageous to holders of
obligations issued by Indian tribal authorities, including a
fund.
Greater
China Region Risk
Investments
in the Greater China region are subject to special risks, such as less developed
or less efficient trading markets, restrictions on monetary repatriation
and possible seizure, nationalization or expropriation of assets. Taiwan’s
history of political contention with China has resulted in ongoing tensions
between the two countries and, at times, threats of military conflict.
Investments
in Taiwan could be adversely affected by its political and economic
relationship with China. In addition, the willingness of the government of the
PRC to support the Mainland
China and Hong
Kong economies and markets
is uncertain, and changes in government policy could significantly affect the
markets in both Hong Kong and China. For example, a government
may restrict investment in companies or industries considered important to
national interests, or intervene in the financial markets, such as by
imposing trading restrictions, or banning or curtailing short selling. The PRC
also maintains strict currency controls and imposes repatriation restrictions
in order to achieve economic, trade and political objectives and regularly
intervenes in the currency market. The imposition of currency controls
and repatriation restrictions may negatively impact the performance and
liquidity of a fund as capital may become trapped in the PRC. Chinese
yuan currency exchange rates can be very volatile and can change quickly and
unpredictably. A small number of companies and industries may
generally
represent a
relatively large portion of the Greater China market. Consequently, a fund may
experience greater price volatility and significantly
lower liquidity than a portfolio invested solely in equity securities of U.S.
issuers. These companies and industries also may be subject to greater
sensitivity to adverse political, economic or regulatory developments generally
affecting the market (see “Risk Factors – Foreign Securities”).
To the
extent a fund invests in securities of Chinese issuers, it may be subject to
certain risks associated with variable interest entities (“VIEs”). VIEs
are widely
used by China-based companies where China restricts or prohibits foreign
ownership in certain sectors, including telecommunications, technology,
media, and education. In a typical VIE structure, a shell company is set up in
an offshore jurisdiction and enters into contractual arrangements
with a China-based operating company. The VIE lists on a U.S. exchange and
investors then purchase the stock issued by the VIE. The VIE
structure is designed to provide investors with economic exposure to the Chinese
company that replicates equity ownership, without providing actual
equity ownership.
VIE
structures do not offer the same level of investor protections as direct
ownership and investors may experience losses if VIE structures are altered,
contractual
disputes emerge, or the legal status of the VIE structure is prohibited under
Chinese law. Additionally, significant portions of the Chinese securities
markets may also become rapidly illiquid, as Chinese issuers have the ability to
suspend the trading of their equity securities, and have shown a
willingness to exercise that option in response to market volatility and other
events.
The legal
status of the VIE structure remains uncertain under Chinese law. There is risk
that the Chinese government may cease to tolerate such VIE structures
at any time or impose new restrictions on the structure, in each case either
generally or with respect to specific issuers. If new laws, rules or
regulations
relating to VIE structures are adopted, investors, including a fund, could
suffer substantial, detrimental, and possibly permanent losses with little
or no recourse available.
In
addition, VIEs may be delisted if they do not meet U.S. accounting standards and
auditor oversight requirements. Delisting would significantly decrease
the liquidity and value of the securities of these companies, decrease the
ability of a fund to invest in such securities and may increase the expenses of
a fund if it is required to seek alternative markets in which to invest in such
securities.
High
Yield (High Risk) Securities
General. A fund may
invest in high yield (high risk) securities, consistent with its investment
objectives and policies. High yield (high risk) securities (also known
as “junk bonds”) are those rated below investment grade and comparable unrated
securities. These securities offer yields that fluctuate over time,
but generally are superior to the yields offered by higher-rated securities.
However, securities rated below investment grade also have greater
risks than higher-rated securities as described below.
Interest
Rate Risk. To the
extent that a fund invests in fixed-income securities, the NAV of the fund’s
shares can be expected to change as general levels of
interest rates fluctuate. However, the market values of securities rated below
investment grade (and comparable unrated securities) tend to react less
to fluctuations in interest rate levels than do those of higher-rated
securities. Except to the extent that values are affected independently by
other
factors (such as developments relating to a specific issuer) when interest rates
decline, the value of a fixed-income fund generally rise. Conversely,
when interest rates rise, the value of a fixed-income fund will
decline.
Liquidity. The
secondary markets for high yield corporate and sovereign debt securities are not
as liquid as the secondary markets for investment grade
securities. The secondary markets for high yield debt securities are
concentrated in relatively few market makers and participants are mostly
institutional
investors. In addition, the trading volume for high yield debt securities is
generally lower than for investment grade securities. Furthermore,
the secondary markets could contract under adverse market or economic conditions
independent of any specific adverse changes in the condition
of a particular issuer.
These
factors may have an adverse effect on the ability of funds investing in high
yield securities to dispose of particular portfolio investments. These
factors
also may limit funds that invest in high yield securities from obtaining
accurate market quotations to value securities and calculate NAV. If a
fund
investing in high yield debt securities is not able to obtain precise or
accurate market quotations for a particular security, it will be more difficult
for the
subadvisor to value the fund’s investments.
Less liquid
secondary markets also may affect a fund’s ability to sell securities at their
fair value. Each fund may invest in illiquid securities, subject to certain
restrictions (see “Additional Investment Policies and Other Instruments”). These
securities may be more difficult to value and to sell at fair value. If
the secondary markets for high yield debt securities are affected by adverse
economic conditions, the proportion of a fund’s assets invested in illiquid
securities may increase.
Below-Investment
Grade Corporate Debt Securities. While the
market values of securities rated below investment grade (and comparable
unrated
securities) tend to react less to fluctuations in interest rate levels than do
those of higher-rated securities, the market values of below-investment
grade corporate debt securities tend to be more sensitive to individual
corporate developments and changes in economic conditions than higher-rated
securities.
In
addition, these securities generally present a higher degree of credit risk.
Issuers of these securities are often highly leveraged and may not have
more
traditional methods of financing available to them. Therefore, their ability to
service their debt obligations during an economic downturn or during
sustained periods of rising interest rates may be impaired. The risk of loss due
to default by such issuers is significantly greater than with investment
grade securities because such securities generally are unsecured and frequently
are subordinated to the prior payment of senior indebtedness.
Below-Investment
Grade Foreign Sovereign Debt Securities. Investing
in below-investment grade foreign sovereign debt securities will expose a
fund to the
consequences of political, social or economic changes in the developing and
emerging market countries that issue the securities. The ability and
willingness of sovereign obligors in these countries to pay principal and
interest on such debt when due may depend on general economic and
political conditions within the relevant country. Developing and emerging market
countries have historically experienced (and may continue to experience)
high inflation and interest rates, exchange rate trade difficulties, extreme
poverty and unemployment. Many of these countries also are characterized
by political uncertainty or instability.
The ability
of a foreign sovereign obligor to make timely payments on its external debt
obligations also will be strongly influenced by:
• |
the
obligor’s balance of payments, including export
performance; |
• |
the
obligor’s access to international credits and
investments; |
• |
fluctuations
in interest rates; and |
• |
the
extent of the obligor’s foreign reserves. |
Defaulted
Securities. The risk
of loss due to default may be considerably greater with lower-quality securities
because they are generally unsecured and are
often subordinated to other debt of the issuer. The purchase of defaulted debt
securities involves risks such as the possibility of complete loss of the
investment where the issuer does not restructure to enable it to resume
principal and interest payments. If the issuer of a security in a fund’s
portfolio
defaults, the fund may have unrealized losses on the security, which may lower
the fund’s NAV. Defaulted securities tend to lose much of their value
before they default. Thus, a fund’s NAV may be adversely affected before an
issuer defaults. In addition, a fund may incur additional expenses if it
must try to
recover principal or interest payments on a defaulted security.
Defaulted
debt securities may be illiquid and, as such, will be part of the percentage
limits on investments in illiquid securities discussed under “Illiquid
Securities.”
Obligor’s
Balance of Payments. A country
whose exports are concentrated in a few commodities or whose economy depends on
certain strategic imports
could be vulnerable to fluctuations in international prices of these commodities
or imports. To the extent that a country receives payment for its exports
in currencies other than dollars, its ability to make debt payments denominated
in dollars could be adversely affected.
Obligor’s
Access to International Credits and Investments. If a
foreign sovereign obligor cannot generate sufficient earnings from foreign trade
to service
its external debt, it may need to depend on continuing loans and aid from
foreign governments, commercial banks, and multilateral organizations,
and inflows of foreign investment. The commitment on the part of these entities
to make such disbursements may be conditioned on the government’s
implementation of economic reforms and/or economic performance and the timely
service of its obligations. Failure in any of these efforts may
result in the cancellation of these third parties’ lending commitments, thereby
further impairing the obligor’s ability or willingness to service its
debts on time.
Obligor’s
Fluctuations in Interest Rates. The cost
of servicing external debt is generally adversely affected by rising
international interest rates since many
external debt obligations bear interest at rates that are adjusted based upon
international interest rates.
Obligor’s
Foreign Reserves. The
ability to service external debt also will depend on the level of the relevant
government’s international currency reserves
and its access to foreign exchange. Currency devaluations may affect the ability
of a sovereign obligor to obtain sufficient foreign exchange to service its
external debt.
The
Consequences of a Default. As a
result of the previously listed factors, a governmental obligor may default on
its obligations. If a default occurs, a
fund holding foreign sovereign debt securities may have limited legal recourse
against the issuer and/or guarantor. Remedies must, in some cases, be
pursued in the courts of the defaulting party itself, and the ability of the
holder of the foreign sovereign debt securities to obtain recourse may be
subject to the political climate in the relevant country. In addition, no
assurance can be given that the holders of commercial bank debt will not
contest
payments to the holders of other foreign sovereign debt obligations in the event
of default under their commercial bank loan agreements.
Sovereign
obligors in developing and emerging countries are among the world’s largest
debtors to commercial banks, other governments, international
financial organizations and other financial institutions. These obligors have in
the past experienced substantial difficulties in servicing their
external debt obligations. This difficulty has led to defaults on certain
obligations and the restructuring of certain indebtedness. Restructuring
arrangements
have included, among other things:
• |
reducing
and rescheduling interest and principal payments by negotiating new or
amended credit agreements or converting outstanding principal and
unpaid interest to Brady Bonds; and |
• |
obtaining
new credit to finance interest payments. |
Holders of
certain foreign sovereign debt securities may be requested to participate in the
restructuring of such obligations and to extend further loans to
their issuers. There can be no assurance that the Brady Bonds and other foreign
sovereign debt securities in which a fund may invest will not be subject
to similar restructuring arrangements or to requests for new credit that may
adversely affect the fund’s holdings. Furthermore, certain participants
in the secondary market for such debt may be directly involved in negotiating
the terms of these arrangements and may therefore have access to
information not available to other market participants.
Securities
in the Lowest Rating Categories. Certain
debt securities in which a fund may invest may have (or be considered comparable
to securities
having) the lowest ratings for non-subordinated debt instruments (e.g.,
securities rated “Caa” or lower by Moody’s, “CCC” or lower by S&P or
Fitch).
These securities are considered to have the following
characteristics:
• |
extremely
poor prospects of ever attaining any real investment
standing; |
• |
current
identifiable vulnerability to default; |
• |
unlikely
to have the capacity to pay interest and repay principal when due in the
event of adverse business, financial or economic
conditions; |
• |
are
speculative with respect to the issuer’s capacity to pay interest and
repay principal in accordance with the terms of the obligations;
and/or |
• |
are
in default or not current in the payment of interest or
principal. |
Accordingly,
it is possible that these types of characteristics could, in certain instances,
reduce the value of securities held by a fund with a commensurate
effect on the value of the fund’s shares.
Hong
Kong Stock Connect Program and Bond Connect Program Risk
A fund may
invest in eligible renminbi-denominated class A shares of equity securities that
are listed and traded on certain Chinese stock exchanges (“China
A-Shares”) through Stock Connect, a mutual market access program designed to,
among others, enable foreign investment in the PRC; and in renminbi-denominated
bonds issued in the PRC by Chinese credit, government and quasi-governmental
issuers (“RMB Bonds”), which are available on the CIBM to
eligible foreign investors through, among others, the “Mutual Bond Market Access
between Mainland China and Hong Kong” (“Bond Connect”)
program.
Trading in
China A-Shares through Stock Connect and bonds through Bond Connect is subject
to certain restrictions and risks. A fund’s investment in China
A-Shares may only be traded through Stock Connect and is not otherwise
transferable. The list of securities eligible to be traded on either
program may
change from time to time. Securities listed on either program may lose purchase
eligibility, which could adversely affect a fund’s performance.
While Stock
Connect is not subject to individual investment quotas, daily and aggregate
investment quotas apply to all Stock Connect participants, which may
restrict or preclude a fund’s ability to invest in China A-Shares. For example,
these quota limitations require that buy orders for China A-Shares be
rejected once the remaining balance of the relevant quota drops to zero or the
daily quota is exceeded (although a fund will be permitted to sell China
A-Shares regardless of the quota balance). These limitations may restrict a fund
from investing in China A-Shares on a timely basis, which could
affect a fund’s ability to effectively pursue its investment strategy.
Investment quotas are also subject to change. Bond Connect is not subject to
investment
quotas.
Chinese
regulations prohibit over-selling of China A-Shares. If a fund intends to sell
China A-shares it holds, it must transfer those securities to the accounts of
a fund’s participant broker before the market opens. As a result, a fund may not
be able to dispose of its holdings of China A-Shares in a timely
manner.
Stock
Connect also is generally available only on business days when both the exchange
on which China A-Shares are offered and the Stock Exchange of Hong
Kong are open and when banks in both markets are open on the corresponding
settlement days. Therefore, an investment in China A-Shares through
Stock Connect may subject a fund to a risk of price fluctuations on days where
Chinese stock markets are open, but Stock Connect is not operating.
Similarly, Bond Connect is only available on days when markets in both China and
Hong Kong are open, which may limit a fund’s ability to trade when
it would be otherwise attractive to do so.
Stock
Connect launched in November 2014 and Bond Connect launched in July 2017.
Therefore, trading through Stock Connect and Bond Connect is subject to
trading, clearance, and settlement procedures that may continue to develop as
the programs mature, which could pose risks to a fund. Bond
Connect is relatively new and its effects on the CIBM are uncertain. In
addition, the trading, settlement and information technology systems
required
for non-Chinese investors in Bond Connect are relatively new. In the event of
systems malfunctions or extreme market conditions, trading via Bond
Connect could be disrupted. In addition, the rules governing the operation of
Stock Connect and Bond Connect may be subject to further interpretation
and guidance. There can be no assurance as to the programs’ continued existence
or whether future developments regarding the programs
may restrict or adversely affect a fund’s investments or returns. Additionally,
the withholding tax treatment of dividends, interest, and capital gains
payable to overseas investors may be subject to change. Furthermore, there is
currently no specific formal guidance by the PRC tax authorities
on the
treatment of income tax and other tax categories payable in respect of trading
in CIBM by eligible foreign institutional investors via Bond Connect.
Any changes in PRC tax law, future clarifications thereof, and/or subsequent
retroactive enforcement by the PRC tax authorities of any tax may result
in a material loss to a fund.
Stock
Connect and Bond Connect regulations provide that investors, such as a fund,
enjoy the rights and benefits of equities purchased through Stock Connect and
bonds purchased through Bond Connect. However, the nominee structure under Stock
Connect requires that China A-Shares be held through the
HKSCC as nominee on behalf of investors. For investments via Bond Connect, the
relevant filings, registration with People’s Bank of China, and account
opening have to be carried out via an onshore settlement agent, offshore custody
agent, registration agent, or other third parties (as the case may
be). As such, a fund is subject to the risks of default or errors on the part of
such third parties.
While a
fund’s ownership of China A-Shares will be reflected on the books of the
custodian’s records, a fund will only have beneficial rights in such
A-Shares. The
precise nature and rights of a fund as the beneficial owner of the equities
through the HKSCC as nominee is not well defined under the law of the PRC.
Although the China Securities Regulatory Commission has issued guidance
indicating that participants in Stock Connect will be able to exercise
rights of beneficial owners in the PRC, the exact nature and methods of
enforcement of the rights and interests of a fund under PRC law is uncertain.
In particular, the courts may consider that the nominee or custodian as
registered holder of China A-Shares, has full ownership over the securities
rather than a fund as the underlying beneficial owner. The HKSCC, as nominee
holder, does not guarantee the title to China A-Shares held through it
and is under no obligation to enforce title or other rights associated with
ownership on behalf of beneficial owners. Consequently, title to these
securities, or the rights associated with them, such as participation in
corporate actions or shareholder meetings, cannot be assured.
While
certain aspects of the Stock Connect trading process are subject to Hong Kong
law, PRC rules applicable to share ownership will apply. In addition,
transactions using Stock Connect are not subject to the Hong Kong investor
compensation fund, which means that a fund will be unable to make
monetary claims on the investor compensation fund that it might otherwise be
entitled to with respect to investments in Hong Kong securities. Other risks
associated with investments in PRC securities apply fully to China A-Shares
purchased through Stock Connect.
Similarly,
in China, the Hong Kong Monetary Authority Central Money Markets Unit holds Bond
Connect securities on behalf of ultimate investors (such as a fund)
in accounts maintained with a China-based custodian (either the China Central
Depository & Clearing Co. or the Shanghai Clearing House). This
recordkeeping system subjects a fund to various risks, including the risk that a
fund may have a limited ability to enforce rights as a bondholder and the
risks of settlement delays and counterparty default of the Hong Kong
sub-custodian. In addition, enforcing the ownership rights of a beneficial
holder of
Bond Connect securities is untested and courts in China have limited experience
in applying the concept of beneficial ownership.
China
A-Shares traded via Stock Connect and bonds trading through Bond Connect are
subject to various risks associated with the legal and technical framework
of Stock Connect and Bond Connect, respectively. In the event that the relevant
systems fail to function properly, trading through Stock Connect or
Bond Connect could be disrupted. In the event of high trade volume or unexpected
market conditions, Stock Connect and Bond Connect may be
available only on a limited basis, if at all. Both the PRC and Hong Kong
regulators are permitted, independently of each other, to suspend Stock
Connect in
response to certain market conditions. Similarly, in the event that the relevant
Mainland Chinese authorities suspend account opening or trading on
the CIBM via Bond Connect, a fund’s ability to invest in Chinese bonds will be
adversely affected and limited. In such event, a fund’s ability to achieve its
investment objective will be negatively affected and, after exhausting other
trading alternatives, a fund may suffer substantial losses as a result.
Hybrid
Instruments
The risks
of investing in hybrid instruments are a combination of the risks of investing
in securities, options, futures, swaps, and currencies. Therefore, an
investment in a hybrid instrument may include significant risks not associated
with a similar investment in a traditional debt instrument with a fixed
principal
amount, is denominated in U.S. dollars, or that bears interest either at a fixed
rate or a floating rate determined by reference to a common, nationally
published benchmark. The risks of a particular hybrid instrument will depend
upon the terms of the instrument, but may include, without limitation,
the possibility of significant changes in the benchmarks or the prices of
underlying assets to which the instrument is linked. These risks generally
depend upon factors unrelated to the operations or credit quality of the issuer
of the hybrid instrument and that may not be readily foreseen by the
purchaser. Such factors include economic and political events, the supply and
demand for the underlying assets, and interest rate movements. In recent
years, various benchmarks and prices for underlying assets have been highly
volatile, and such volatility may be expected in the future. See “Hedging
and Other Strategic Transactions” for a description of certain risks associated
with investments in futures, options, and forward contracts. The
principal risks of investing in hybrid instruments are as follows:
|
Volatility.
Hybrid instruments are potentially more volatile and carry greater market
risks than traditional debt instruments. Depending on the structure
of the particular hybrid instrument, changes in a benchmark may be
magnified by the terms of the hybrid instrument and have an even
more
dramatic and substantial effect upon the value of the hybrid instrument.
Also, the prices of the hybrid instrument and the benchmark or
underlying
asset may not move in the same direction or at the same
time. |
|
Leverage
Risk.
Hybrid instruments may bear interest or pay preferred dividends at below
market (or even relatively nominal) rates. Alternatively, hybrid
instruments may bear interest at above market rates, but bear an increased
risk of principal loss (or gain). For example, an increased risk of
principal
loss (or gain) may result if “leverage” is used to structure a hybrid
instrument. Leverage risk occurs when the hybrid instrument is
structured
so that a change in a benchmark or underlying asset is multiplied to
produce a greater value change in the hybrid instrument, thereby
magnifying
the risk of loss, as well as the potential for
gain. |
|
Liquidity
Risk.
Hybrid instruments also may carry liquidity risk since the instruments are
often “customized” to meet the needs of a particular investor.
Therefore, the number of investors that would be willing and able to buy
such instruments in the secondary market may be smaller than for
more
traditional debt securities. In addition, because the purchase and sale of
hybrid instruments could take place in an OTC market without the
|
|
guarantee
of a central clearing organization or in a transaction between a fund and
the issuer of the hybrid instrument, the creditworthiness of the
counterparty
or issuer of the hybrid instrument would be an additional risk factor,
which the fund would have to consider and
monitor. |
|
Lack
of U.S. Regulation.
Hybrid instruments may not be subject to regulation of the CFTC, which
generally regulates the trading of swaps and commodity
futures by U.S. persons, the SEC, which regulates the offer and sale of
securities by and to U.S. persons, or any other governmental regulatory
authority. |
|
Credit
and Counterparty Risk. The
issuer or guarantor of a hybrid instrument may be unable or unwilling to
make timely principal, interest or settlement
payments, or otherwise honor its obligations. Funds that invest in hybrid
instruments are subject to varying degrees of risk that the issuers
of the securities will have their credit rating downgraded or will
default, potentially reducing a fund’s share price and income
level. |
The various
risks discussed above with respect to hybrid instruments particularly the market
risk of such instruments, may cause significant fluctuations
in the NAV of a fund that invests in such instruments.
Industry
or Sector Investing
When a fund
invests a substantial portion of its assets in a particular industry or sector
of the economy, the fund’s investments are not as varied as the investments
of most funds and are far less varied than the broad securities markets. As a
result, the fund’s performance tends to be more volatile than other
funds, and the values of the fund’s investments tend to go up and down more
rapidly. In addition, to the extent that a fund invests significantly in
a
particular industry or sector, it is particularly susceptible to the impact of
market, economic, regulatory and other factors affecting that industry or
sector. The
principal risks of investing in certain sectors are described
below.
|
Consumer
Discretionary. The
consumer discretionary sector may be affected by fluctuations in supply
and demand and may also be adversely affected
by changes in consumer spending as a result of world events, political and
economic conditions, commodity price volatility, changes in exchange
rates, imposition of import controls, increased competition, depletion of
resources and labor relations. |
|
For
example, the coronavirus
(COVID-19) pandemic led
to materially reduced consumer demand in certain sectors, a disruption in
supply chains and
an increase in market closures and retail company bankruptcies. The
coronavirus
(COVID-19) pandemic may affect certain countries, industries,
economic sectors, and companies more than others, may continue
to exacerbate
existing economic, political, or social tensions and may continue
to increase
the probability of an economic recession or depression. The impact on the
consumer discretionary market may last for an extended
period of time. |
|
Consumer
Staples.
Companies in the consumer staples sector may be affected by general
economic conditions, commodity production and pricing,
consumer confidence and spending, consumer preferences, interest rates,
product cycles, marketing, competition, and government regulation.
Other risks include changes in global economic, environmental and
political events, and the depletion of resources. Companies in the
consumer
staples sector may also be negatively impacted by government regulations
affecting their products. For example, government regulations may
affect the permissibility of using various food additives and production
methods of companies that make food products, which could affect
company
profitability. Tobacco companies, in particular, may be adversely affected
by new laws, regulations and litigation. Companies in the consumer
staples sector may also be subject to risks relating to the supply of,
demand for, and prices of raw materials. The prices of raw materials
fluctuate
in response to a number of factors, including, changes in exchange rates,
import and export controls, changes in international agricultural
and
trading policies, and seasonal and weather conditions, among others. In
addition, the success of food, beverage, household and personal
product
companies, in particular, may be strongly affected by unpredictable
factors, such as, demographics, consumer spending, and product
trends. |
|
Energy.
Companies in the energy sector may be affected by energy prices, supply
and demand fluctuations including in energy fuels, energy conservation,
liabilities arising from government or civil actions, environmental and
other government regulations, and geopolitical events including
political
instability and war. The market value of companies in the local energy
sector is heavily impacted by the levels and stability of global energy
prices,
energy conservation efforts, the success of exploration projects, exchange
rates, interest rates, economic conditions, tax and other government
regulations, increased competition and technological advances, as well as
other factors. Companies in this sector may be subject to extensive
government regulation and contractual fixed pricing, which may increase
the cost of doing business and limit these companies’ profits. A
large
part of the returns of these companies depends on few customers, including
governmental entities and utilities. As a result, governmental
budget
constraints may have a significant negative effect on the stock prices of
energy sector companies. Energy companies may also operate in, or
engage
in, transactions involving countries with less developed regulatory
regimes or a history of expropriation, nationalization or other adverse
policies.
As a result, securities of companies in the energy field are subject to
quick price and supply fluctuations caused by events relating to
international
politics. Other risks include liability from accidents resulting in injury
or loss of life or property, pollution or other environmental problems,
equipment malfunctions or mishandling of materials and a risk of loss from
terrorism, political strife and natural disasters. Energy companies
can also be heavily affected by the supply of, and demand for, their
specific product or service and for energy products in general, and
government
subsidization. Energy companies may have high levels of debt and may be
more likely to restructure their businesses if there are downturns
in energy markets or the economy as a
whole. |
|
Companies
in the energy sector were
adversely
affected by reduced demand for oil and other energy commodities as a
result of the slowdown in economic
activity resulting from the spread of the coronavirus
(COVID-19) pandemic and by price competition among key oil producing
countries. Global
oil
prices declined
significantly at the beginning of the coronavirus (COVID-19) pandemic and
have experienced significant price volatility,
including
a period where an oil-price futures contract fell into negative territory
for the first time in history, as demand for oil slowed
and oil storage facilities
had
reached their
storage capacities. The impact on such commodities markets from
varying levels of demand may continue to be volatile for
an extended period of time. |
|
Financial
Services. To
the extent that a fund invests principally in securities of financial
services companies, it is particularly vulnerable to events affecting
that industry. Financial services companies may include, but are not
limited to, commercial and industrial banks, savings and loan associations
and their holding companies, consumer and industrial finance companies,
diversified financial services companies, investment banking,
securities brokerage and investment advisory companies, leasing companies
and insurance companies. The types of companies that compose
the financial services sector may change over time. These companies are
all subject to extensive regulation, rapid business changes, volatile
performance dependent upon the availability and cost of capital,
prevailing interest rates and significant competition. General economic
conditions
significantly affect these companies. Credit and other losses resulting
from the financial difficulty of borrowers or other third parties
have
a potentially adverse effect on companies in this sector. Investment
banking, securities brokerage and investment advisory companies are
particularly
subject to government regulation and the risks inherent in securities
trading and underwriting activities. In addition, all financial
services
companies face shrinking profit margins due to new competitors, the cost
of new technology, and the pressure to compete globally. Banking.
Commercial banks (including “money center” regional and community banks),
savings and loan associations and holding companies of the foregoing
are especially subject to adverse effects of volatile interest rates,
concentrations of loans in particular industries (such as real estate or
energy)
and significant competition. The profitability of these businesses is to a
significant degree dependent upon the availability and cost of
capital
funds. Economic conditions in the real estate market may have a
particularly strong effect on certain banks and savings associations.
Commercial
banks and savings associations are subject to extensive federal and, in
many instances, state regulation. Neither such extensive regulation
nor the federal insurance of deposits ensures the solvency or
profitability of companies in this industry, and there is no assurance
against losses
in securities issued by such companies. Insurance.
Insurance companies are particularly subject to government regulation and
rate setting, potential anti-trust and tax law changes, and industry-wide
pricing and competition cycles. Property and casualty insurance companies
also may be affected by weather and other catastrophes. Life
and health insurance companies may be affected by mortality and morbidity
rates, including the effects of epidemics. Individual insurance
companies
may be exposed to reserve inadequacies, problems in investment portfolios
(for example, due to real estate or “junk” bond holdings) and failures
of reinsurance carriers. |
|
Health
Sciences.
Companies in this sector are subject to the additional risks of increased
competition within the health care industry, changes in legislation
or government regulations, reductions in government funding, product
liability or other litigation and the obsolescence of popular products.
The prices of the securities of health sciences companies may fluctuate
widely due to government regulation and approval of their products
and services, which may have a significant effect on their price and
availability. In addition, the types of products or services produced or
provided
by these companies may quickly become obsolete. Moreover, liability for
products that are later alleged to be harmful or unsafe may be
substantial
and may have a significant impact on a company’s market value or share
price. |
|
Industrials.
Companies in the industrials sector may be affected by general economic
conditions, commodity production and pricing, supply and demand
fluctuations, environmental and other government regulations, geopolitical
events, interest rates, insurance costs, technological developments,
liabilities arising from governmental or civil actions, labor relations,
import controls and government spending. The value of securities
issued by companies in the industrials sector may also be adversely
affected by supply and demand related to their specific products or
services
and industrials sector products in general, as well as liability for
environmental damage and product liability claims and government
regulations.
For example, the products of manufacturing companies may face obsolescence
due to rapid technological developments and frequent new
product introduction. Certain companies within this sector, particularly
aerospace and defense companies, may be heavily affected by government
spending policies because companies involved in this industry rely, to a
significant extent, on government demand for their products and
services, and, therefore, the financial condition of, and investor
interest in, these companies are significantly influenced by governmental
defense
spending policies, which are typically under pressure from efforts to
control the U.S. (and other) government budgets. In addition, securities
of industrials companies in transportation may be cyclical and have
occasional sharp price movements which may result from economic
changes,
fuel prices, labor relations and insurance costs, and transportation
companies in certain countries may also be subject to significant
government
regulation and oversight, which may adversely affect their
businesses. |
|
Internet-Related
Investments. The
value of companies engaged in Internet-related activities, which is a
developing industry, is particularly vulnerable
to: (a) rapidly changing technology; (b) extensive government regulation;
and (c) relatively high risk of obsolescence caused by scientific
and
technological advances. In addition, companies engaged in Internet-related
activities are difficult to value and many have high share prices
relative
to their earnings which they may not be able to maintain over the
long-term. Moreover, many Internet companies are not yet profitable and
will
need additional financing to continue their operations. There is no
guarantee that such financing will be available when needed. Since many
Internet
companies are start-up companies, the risks associated with investing in
small companies are heightened for these companies. A fund that
invests
a significant portion of its assets in Internet-related companies should
be considered extremely risky even as compared to other funds that
invest
primarily in small company securities. |
|
Materials.
Companies in the materials sector may be affected by general economic
conditions, commodity production and prices, consumer preferences,
interest rates, exchange rates, product cycles, marketing, competition,
resource depletion, and environmental, import/export and other
government regulations. Other risks may include liabilities for
environmental damage and general civil liabilities, and mandated
expenditures for
safety and pollution control. The materials sector may also be affected by
economic cycles, technological progress, and labor relations. At
times,
worldwide production of industrial materials has been greater than demand
as a result of over-building or economic downturns, leading to
poor
investment returns or losses. These risks are heightened for companies in
the materials sector located in foreign
markets. |
|
Natural
Resources. A
fund’s investments in natural resources companies are especially affected
by variations in the commodities markets (which may
be due to market events, regulatory developments or other factors that
such fund cannot control) and such companies may lack the resources
and
the broad business lines to weather hard times. Natural resources
companies can be significantly affected by events relating to domestic or
|
|
international
political and economic developments, energy conservation efforts, the
success of exploration projects, reduced availability of transporting,
processing, storing or delivering natural resources, extreme weather or
other natural disasters, and threats of attack by terrorists on
energy
assets. Additionally, natural resource companies are subject to
substantial government regulation, including environmental regulation and
liability
for environmental damage, and changes in the regulatory environment for
energy companies may adversely impact their profitability. At times,
the performance of these investments may lag the performance of other
sectors or the market as a whole. |
|
Investments
in certain commodity-linked instruments, such as crude oil and crude oil
products, can be susceptible to negative prices due to a surplus
in production caused by global events, including restrictions or
reductions in global travel. Exposure to such commodity-linked instruments
may
adversely affect an issuer’s returns or the performance of the
fund. |
|
The
natural resources sector was
adversely
impacted by the reduced demand for oil and other natural resources as a
result of the slowdown in economic
activity resulting from the spread of the coronavirus
(COVID-19) pandemic. Beginning
with the coronavirus (COVID-19) pandemic, global
oil
prices have experienced
significant volatility, including a period where an oil-price futures
contract fell into negative territory for the first time in history,
as demand for oil slowed
and oil storage facilities reached
their storage capacities. The impact on the natural resources sector
from
varying levels
of demand may continue to be volatile for
an extended period of time. |
|
Technology.
Technology companies rely heavily on technological advances and face
intense competition, both domestically and internationally, which
may have an adverse effect on profit margins. Shortening of product cycle
and manufacturing capacity increases may subject technology companies
to aggressive pricing. Technology companies may have limited product
lines, markets, financial resources or personnel. The products of
technology
companies may face product obsolescence due to rapid technological
developments and frequent new product introduction, unpredictable
changes in growth rates and competition for the services of qualified
personnel. Technology companies may not successfully introduce
new products, develop and maintain a loyal customer base or achieve
general market acceptance for their
products. |
|
Stocks
of technology companies, especially those of smaller, less-seasoned
companies, tend to be more volatile than the overall market. Companies
in the technology sector are also heavily dependent on patent and
intellectual property rights, the loss or impairment of which may
adversely
affect the profitability of these companies. Technology companies engaged
in manufacturing, such as semiconductor companies, often operate
internationally which could expose them to risks associated with
instability and changes in economic and political conditions, foreign
currency
fluctuations, changes in foreign regulations, competition from subsidized
foreign competitors with lower production costs and other risks
inherent
to international business. |
|
Telecommunications.
Companies in the telecommunications sector are subject to the additional
risks of rapid obsolescence due to technological advancement
or development, lack of standardization or compatibility with existing
technologies, an unfavorable regulatory environment, and a dependency
on patent and copyright protection. The prices of the securities of
companies in the telecommunications sector may fluctuate widely
due
to both federal and state regulations governing rates of return and
services that may be offered, fierce competition for market share, and
competitive
challenges in the U.S. from foreign competitors engaged in strategic joint
ventures with U.S. companies, and in foreign markets from both
U.S. and foreign competitors. In addition, recent industry consolidation
trends may lead to increased regulation of telecommunications companies
in their primary markets. |
|
Utilities.
Companies in the utilities sector may be affected by general economic
conditions, supply and demand, financing and operating costs, rate
caps, interest rates, liabilities arising from governmental or civil
actions, consumer confidence and spending, competition, technological
progress,
energy prices, resource conservation and depletion, man-made or natural
disasters, geopolitical events, and environmental and other government
regulations. The value of securities issued by companies in the utilities
sector may be negatively impacted by variations in exchange rates,
domestic and international competition, energy conservation and
governmental limitations on rates charged to customers. Although rate
changes
of a regulated utility usually vary in approximate correlation with
financing costs, due to political and regulatory factors rate changes
usually
happen only after a delay after the changes in financing costs.
Deregulation may subject utility companies to increased competition and
can negatively
affect their profitability as it permits utility companies to diversify
outside of their original geographic regions and customary lines of
business,
causing them to engage in more uncertain ventures. Deregulation can also
eliminate restrictions on the profits of certain utility companies,
but can simultaneously expose these companies to an increased risk of
loss. Although opportunities may permit certain utility companies
to earn more than their traditional regulated rates of return, companies
in the utilities industry may have difficulty obtaining an adequate
return
on invested capital, raising capital, or financing large construction
projects during periods of inflation or unsettled capital markets. Utility
companies
may also be subject to increased costs because of the effects of man-made
or natural disasters. Current and future regulations or legislation
can make it more difficult for utility companies to operate profitably.
Government regulators monitor and control utility revenues and
costs,
and thus may restrict utility profits. There is no assurance that
regulatory authorities will grant rate increases in the future, or that
those increases
will be adequate to permit the payment of dividends on stocks issued by a
utility company. Because utility companies are faced with the same
obstacles, issues and regulatory burdens, their securities may react
similarly and more in unison to these or other market
conditions. |
Initial
Public Offerings (“IPOs”)
IPOs may
have a magnified impact on the performance of a fund with a small asset base.
The impact of IPOs on a fund’s performance likely will decrease as
the fund’s asset size increases, which could reduce the fund’s returns. IPOs may
not be consistently available to a fund for investment, particularly
as the fund’s asset base grows. IPO shares frequently are volatile in price due
to the absence of a prior public market, the small number of shares
available for trading and limited information about the issuer. Therefore, a
fund may hold IPO shares for a very short period of time. This may increase
the turnover of a fund and may lead to increased expenses for a fund, such as
commissions and transaction costs. In addition, IPO shares can experience
an immediate drop in value if the demand for the securities does not continue to
support the offering price.
Investment
Companies
The funds
may invest in shares of other investment companies, including both open- and
closed-end investment companies (including single country funds,
ETFs, and BDCs). When making such an investment, a fund will be indirectly
exposed to all the risks of such investment companies. In general, the
investing funds will bear a pro rata portion of the other investment company’s
fees and expenses, which will reduce the total return in the investing
funds.
Certain types of investment companies, such as closed-end investment companies,
issue a fixed number of shares that trade on a stock exchange
and may involve the payment of substantial premiums above the value of such
investment companies’ portfolio securities when traded OTC or at
discounts to their NAVs. Others are continuously offered at NAV, but also may be
traded in the secondary market.
In
addition, the funds may invest in private investment funds, vehicles, or
structures. A fund also may invest in debt-equity conversion funds, which are
funds
established to exchange foreign bank debt of countries whose principal
repayments are in arrears into a portfolio of listed and unlisted equities,
subject to
certain repatriation restrictions.
Exchange-Traded
Funds. A fund
may invest in ETFs, which are a type of security bought and sold on a securities
exchange. A fund could purchase shares of
an ETF to gain exposure to a portion of the U.S. or a foreign market. The risks
of owning shares of an ETF include the risks of directly owning the
underlying securities and other instruments the ETF holds. A lack of liquidity
in an ETF (e.g., absence of an active trading market) could result in
the ETF
being more volatile than its underlying securities. The existence of extreme
market volatility or potential lack of an active trading market for an
ETF’s
shares could result in the ETF’s shares trading at a significant premium or
discount to its NAV. An ETF has its own fees and expenses, which are
indirectly
borne by the fund. A fund may also incur brokerage and other related costs when
it purchases and sells ETFs. Also, in the case of passively-managed
ETFs, there is a risk that an ETF may fail to closely track the index or market
segment that it is designed to track due to delays in the ETF’s implementation
of changes to the composition of the index or other factors.
Business
Development Companies. A BDC is
a less-common type of closed-end investment company that more closely resembles
an operating company
than a typical investment company. BDCs typically invest in and lend to small-
and medium-sized private and certain public companies that may not
have access to public equity markets to raise capital. BDCs invest in such
diverse industries as health care, chemical and manufacturing, technology
and service companies. BDCs generally invest in less mature private companies,
which involve greater risk than well-established, publicly traded
companies. BDCs are unique in that at least 70% of their investments must be
made in private and certain public U.S. businesses, and BDCs are
required to make available significant managerial assistance to their portfolio
companies. Generally, little public information exists for private and
thinly
traded companies, and there is a risk that investors may not be able to make a
fully informed investment decision. With investments in debt instruments
issued by such portfolio companies, there is a risk that the issuer may default
on its payments or declare bankruptcy.
Investment
Grade Fixed-Income Securities in the Lowest Rating Category
Investment
grade fixed-income securities in the lowest rating category (i.e., rated “Baa”
by Moody’s and “BBB” by S&P or Fitch, and comparable unrated
securities) involve a higher degree of risk than fixed-income securities in the
higher rating categories. While such securities are considered investment
grade quality and are deemed to have adequate capacity for payment of principal
and interest, such securities lack outstanding investment characteristics
and have speculative characteristics as well. For example, changes in economic
conditions or other circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than is the case with
higher grade securities.
LIBOR
Discontinuation Risk
Certain
debt securities, derivatives and other financial instruments may utilize LIBOR
as the reference or benchmark rate for interest rate calculations. However,
following allegations of manipulation and concerns regarding liquidity, in July
2017 the U.K. Financial Conduct Authority, which regulates LIBOR,
announced that it would cease its
active encouragement of banks to provide the quotations needed to sustain LIBOR.
The ICE Benchmark Administration
Limited, the administrator of LIBOR, ceased
publishing certain LIBOR
maturities, including some U.S. LIBOR
maturities, on December 31, 2021,
and is expected
to cease publishing the
remaining and most liquid U.S. LIBOR
maturities on June 30, 2023. It is expected that market participants
have or
will
transition to the use of alternative reference or benchmark rates prior to the
applicable LIBOR publication cessation date. Additionally, although
regulators have encouraged the development and adoption of alternative rates
such as the Secured Overnight Financing Rate (“SOFR”),
the future utilization of LIBOR or of any particular replacement rate remains
uncertain.
Although
the transition process away from LIBOR has become increasingly well-defined in
advance of the anticipated discontinuation dates, the impact on certain
debt securities, derivatives and other financial instruments remains uncertain.
It is expected that market participants will adopt
alternative rates such
as SOFR or otherwise amend
financial instruments referencing LIBOR to include fallback provisions and other
measures that contemplate the
discontinuation of LIBOR or other similar market disruption events, but neither
the effect of the transition process nor the viability of such measures is
known. Further,
uncertainty and risk remain regarding the willingness and ability of issuers and
lenders to include alternative rates and revised
provisions in new and existing contracts or instruments. To
facilitate the transition of legacy derivatives contracts referencing LIBOR, the
International
Swaps and Derivatives Association, Inc. launched a protocol to incorporate
fallback provisions. However, there are obstacles to converting
certain longer term securities and transactions to a new benchmark or benchmarks
and the effectiveness of one alternative reference rate versus
multiple alternative reference rates in new or existing financial instruments
and products has not been determined. Certain proposed replacement
rates to LIBOR, such as SOFR, which is a broad measure of secured overnight
U.S. Treasury
repo rates, are materially different from LIBOR, and
changes in the applicable spread for financial instruments transitioning away
from LIBOR will need to be made to accommodate the differences.
Furthermore, the risks associated with the expected discontinuation of LIBOR and
transition to replacement rates may be exacerbated if an orderly
transition to an alternative reference rate is not completed in a timely
manner.
As market
participants transition away from LIBOR, LIBOR’s usefulness may deteriorate
and these effects could be experienced until the permanent cessation
of the majority of U.S. LIBOR rates in 2023. The
transition process may lead to increased volatility and illiquidity in markets
that currently
rely on
LIBOR to determine interest rates. LIBOR’s deterioration may adversely affect
the liquidity and/or market value of securities that use LIBOR as a benchmark
interest rate, including securities and other financial instruments held by the
fund. Further, the utilization of an alternative reference rate, or the
transition process to an alternative reference rate, may adversely affect the
fund’s performance.
Alteration
of the terms of a debt instrument or a modification of the terms of other types
of contracts to replace LIBOR or another interbank offered rate
(“IBOR”) with a new reference rate could result in a taxable exchange and the
realization of income and gain/loss for U.S. federal income tax purposes.
The IRS has issued final regulations regarding the tax consequences of the
transition from IBOR to a new reference rate in debt instruments and
non-debt contracts. Under the final regulations, alteration or modification of
the terms of a debt instrument to replace an operative rate that uses
a
discontinued IBOR with a qualified rate (as defined in the final regulations)
including true up payments equalizing the fair market value of contracts
before and
after such IBOR transition, to add a qualified rate as a fallback rate to a
contract whose operative rate uses a discontinued IBOR or to replace a
fallback rate that uses a discontinued IBOR with a qualified rate would not be
taxable. The IRS may provide additional guidance, with potential
retroactive effect.
Lower
Rated Fixed-Income Securities
Lower rated
fixed-income securities are defined as securities rated below-investment grade
(e.g., rated “Ba” and below by Moody’s, or “BB” and below by S&P
or Fitch). The principal risks of investing in these securities are as
follows:
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Risk
to Principal and Income.
Investing in lower rated fixed-income securities is considered
speculative. While these securities generally provide greater
income potential than investments in higher rated securities, there is a
greater risk that principal and interest payments will not be made.
Issuers
of these securities may even go into default or become
bankrupt. |
Price
Volatility. The price
of lower rated fixed-income securities may be more volatile than securities in
the higher rating categories. This volatility may
increase during periods of economic uncertainty or change. The price of these
securities is affected more than higher rated fixed-income securities
by the market’s perception of their credit quality especially during times of
adverse publicity. In the past, economic downturns or an increase in
interest rates have, at times, caused more defaults by issuers of these
securities and may do so in the future. Economic downturns and increases
in interest rates have an even greater effect on highly leveraged issuers of
these securities.
Liquidity. The market
for lower rated fixed-income securities may have more limited trading than the
market for investment grade fixed-income securities.
Therefore, it may be more difficult to sell these securities and these
securities may have to be sold at prices below their market value in
order to
meet redemption requests or to respond to changes in market
conditions.
Dependence
on Subadvisor’s Own Credit Analysis. While a
subadvisor to a fund may rely on ratings by established credit rating agencies,
it also will
supplement such ratings with its own independent review of the credit quality of
the issuer. Therefore, the assessment of the credit risk of lower rated
fixed-income securities is more dependent on a subadvisor’s evaluation than the
assessment of the credit risk of higher rated securities.
Additional
Risks Regarding Lower Rated Corporate Fixed-Income Securities. Lower
rated corporate debt securities (and comparable unrated securities)
tend to be more sensitive to individual corporate developments and changes in
economic conditions than higher-rated corporate fixed-income
securities.
Issuers of
lower rated corporate debt securities also may be highly leveraged, increasing
the risk that principal and income will not be repaid.
Additional
Risks Regarding Lower Rated Foreign Government Fixed-Income
Securities. Lower
rated foreign government fixed-income securities
are subject to the risks of investing in emerging market countries described
under “Risk Factors—Foreign Securities.” In addition, the ability and
willingness of a foreign government to make payments on debt when due may be
affected by the prevailing economic and political conditions within the
country. Emerging market countries may experience high inflation, interest rates
and unemployment as well as exchange rate fluctuations that
adversely affect trade and political uncertainty or instability. These factors
increase the risk that a foreign government will not make payments when
due.
Market
Events
Events in
certain sectors historically have resulted, and may in the future result, in an
unusually high degree of volatility in the financial markets, both domestic
and foreign. These events have included, but are not limited to: bankruptcies,
corporate restructurings, and other similar events; governmental
efforts to limit short selling and high frequency trading; measures to address
U.S. federal and state budget deficits; social, political, and economic
instability in Europe; economic stimulus by the Japanese central bank; dramatic
changes in energy prices and currency exchange rates; and China’s
economic slowdown. Interconnected global economies and financial markets
increase the possibility that conditions in one country or region might
adversely impact issuers in a different country or region. Both domestic and
foreign equity markets have experienced increased volatility and turmoil,
with issuers that have exposure to the real estate, mortgage, and credit markets
particularly affected. Financial
institutions could
suffer losses as interest
rates rise or economic conditions deteriorate.
In
addition, relatively high market volatility and reduced liquidity in credit and
fixed-income markets may adversely affect many issuers worldwide. Actions
taken by the U.S. Federal Reserve (the “Fed”) or foreign central banks to
stimulate or stabilize economic growth, such as interventions in currency
markets, could cause high volatility in the equity and fixed-income markets.
Reduced liquidity may result in less money being available to purchase
raw materials, goods, and services from emerging markets, which may, in turn,
bring down the prices of these economic staples. It may also result in
emerging-market issuers having more difficulty obtaining financing, which may,
in turn, cause a decline in their securities prices.
In
addition, while interest rates have been historically low in
recent years in the United States and abroad, any decision by the Fed to adjust
the target Fed funds
rate, among other factors, could cause markets to experience continuing high
volatility. A significant increase in interest rates may cause a
decline in
the market for equity securities. Also, regulators have expressed concern that
rate increases may contribute to price volatility. These events and the
possible resulting market volatility may have an adverse effect on a
fund.
Political
turmoil within the United States and abroad may also impact a fund. Although the
U.S. government has honored its credit obligations, it remains
possible that the United States could default on its obligations. While it is
impossible to predict the consequences of such an unprecedented event, it
is likely that a default by the United States would be highly disruptive to the
U.S. and global securities markets and could significantly impair the value
of a fund’s investments. Similarly, political events within the United States at
times have resulted, and may in the future result, in a shutdown of
government services, which could negatively affect the U.S. economy, decrease
the value of many fund investments, and increase uncertainty in or impair the
operation of the U.S. or other securities markets. In recent
years, the U.S. renegotiated many of its
global trade relationships and imposed
or
threatened to impose significant import tariffs. These actions could lead to
price volatility and overall declines in U.S. and global investment markets.
Uncertainties
surrounding the sovereign debt of a number of EU countries and the viability of
the EU have disrupted and may in the future disrupt markets in
the United States and around the world. If one or more countries leave the EU or
the EU dissolves, the world’s securities markets likely will be
significantly disrupted. On January 31, 2020, the UK left the EU, commonly
referred to as “Brexit,” and the UK ceased to be a member of the EU.
Following a
transition period during which the EU and the UK Government engaged in a series
of negotiations regarding the terms of the UK’s future relationship
with the EU, the EU and the UK Government signed an agreement on December 30,
2020 regarding the economic relationship between the UK and
the EU. This agreement became effective on a provisional basis on January 1,
2021 and
formally entered into force on May 1, 2021. While the full
impact of Brexit is unknown, Brexit has already resulted in volatility in
European and global markets. There
remains significant market uncertainty
regarding Brexit’s ramifications, and the range and potential implications of
possible political, regulatory, economic, and market outcomes
are difficult to predict. This uncertainty may affect other countries in the EU
and elsewhere, and may cause volatility within the EU, triggering
prolonged economic downturns in certain countries within the EU. Despite the
influence of the lockdowns, and the economic bounce back, Brexit has
had a material impact on the UK’s economy. Additionally, trade between the UK
and the EU did not benefit from the global rebound in trade in 2021,
and remained at the very low levels experienced at the start of the coronavirus
(COVID-19) pandemic in 2020,
highlighting Brexit’s potential long-term
effects on the UK economy.
In
addition, Brexit may create additional and substantial economic stresses for the
UK, including a contraction of the UK economy and price volatility in UK
stocks, decreased trade, capital outflows, devaluation of the British pound,
wider corporate bond spreads due to uncertainty and declines in business
and consumer spending as well as foreign direct investment. Brexit may also
adversely affect UK-based financial firms that have counterparties
in the EU or participate in market infrastructure (trading venues, clearing
houses, settlement facilities) based in the EU. Additionally, the spread
of the coronavirus (COVID-19) pandemic is likely to continue to stretch the
resources and deficits of many countries in the EU and throughout
the world, increasing the possibility that countries may be unable to make
timely payments on their sovereign debt. These events and the resulting
market volatility may have an adverse effect on the performance of the
fund.
A
widespread health crisis such as a global pandemic could cause substantial
market volatility, exchange trading suspensions and closures, which may lead to
less liquidity in certain instruments, industries, sectors or the markets
generally, and may ultimately affect fund performance. For example,
the coronavirus
(COVID-19) pandemic has resulted and may
continue to result in
significant disruptions to global business activity
and market
volatility due to disruptions in market access, resource availability,
facilities operations, imposition of tariffs, export controls and supply chain
disruption,
among others. The impact
of a health crisis and other epidemics and pandemics that may arise in the
future, could affect the global economy in
ways that cannot necessarily be foreseen at the present time. A health crisis
may exacerbate other pre-existing political, social and economic
risks. Any such impact could adversely affect the fund’s performance, resulting
in losses to your investment.
The United
States responded
to the coronavirus
(COVID-19) pandemic and resulting economic distress with fiscal and monetary
stimulus packages. In late March
2020, the government passed the Coronavirus Aid, Relief, and Economic Security
Act, a stimulus package providing for over $2.2 trillion in resources
to small businesses, state and local governments, and individuals adversely
impacted by the coronavirus
(COVID-19) pandemic. In late December
2020, the government also passed a spending bill that included $900 billion in
stimulus relief for the coronavirus
(COVID-19) pandemic.
Further, in
March 2021, the government passed the American Rescue Plan Act of 2021, a $1.9
trillion stimulus bill to accelerate the United States’ recovery
from the economic and health effects of the coronavirus
(COVID-19) pandemic.
In addition, in mid-March 2020 the Fed cut interest rates to historically
low levels and promised unlimited and open-ended quantitative easing, including
purchases of corporate and municipal government bonds. The Fed
also enacted various programs to support liquidity operations and funding in the
financial markets, including expanding its reverse repurchase
agreement operations, adding $1.5 trillion of liquidity to the banking system,
establishing swap lines with other major central banks to provide
dollar funding, establishing a program to support money market funds, easing
various bank capital buffers, providing funding backstops for businesses
to provide bridging loans for up to four years, and providing funding to help
credit flow in asset-backed securities markets. The Fed also extended
credit to
small- and medium-sized businesses.
When the
Fed “tapers” or reduces the amount of securities it purchases pursuant to
quantitative easing, and/or raises the federal funds rate, there is a
risk that
interest rates will rise, which could expose fixed-income and related markets to
heightened volatility and could cause the value of a fund’s investments,
and the fund’s NAV, to decline, potentially suddenly and significantly. As a
result, the fund may experience high redemptions and, as a result,
increased portfolio turnover, which could increase the costs that the fund
incurs and may negatively impact the fund’s performance.
Political
and military events, including in Ukraine,
North
Korea, Russia,
Venezuela,
Iran, Syria, and other areas of the Middle East, and nationalist unrest in
Europe and South America, also may cause market disruptions.
As a result
of continued political tensions and armed conflicts, including the Russian
invasion of Ukraine commencing in February of 2022, the extent and
ultimate result of which are unknown at this time, the United States and the EU,
along with the regulatory bodies of a number of countries, have imposed
economic sanctions on certain Russian corporate entities and individuals, and
certain sectors of Russia’s economy, which may result in, among other
things, the continued devaluation of Russian currency, a downgrade in the
country’s credit rating, and/or a decline in the value and liquidity
of Russian securities, property or interests. These sanctions could also result
in the immediate freeze of Russian securities and/or funds invested in
prohibited assets, impairing the ability of a fund to buy, sell, receive or
deliver those securities and/or assets. These sanctions or the threat
of
additional sanctions could also result in Russia taking counter measures or
retaliatory actions, which may further impair the value and liquidity of
Russian
securities. The United States and other nations or international organizations
may also impose additional economic sanctions or take other actions
that may adversely affect Russia-exposed issuers and companies in various
sectors of the Russian economy. Any or all of these potential results
could lead Russia’s economy into a recession. Economic sanctions and other
actions against Russian institutions, companies, and individuals resulting
from the ongoing conflict may also have a substantial negative impact on other
economies and securities markets both regionally and globally,
as well as on companies with operations in the conflict region, the extent to
which is unknown at this time. The United States and the EU have also
imposed similar sanctions on Belarus for its support of Russia’s invasion of
Ukraine. Additional sanctions may be imposed on Belarus and other countries
that support Russia. Any such sanctions could present substantially similar
risks as those resulting from the sanctions imposed on Russia, including
substantial negative impacts on the regional and global economies and securities
markets.
In
addition, there is a risk that the prices of goods and services in the United
States and many foreign economies may decline over time, known as deflation.
Deflation may have an adverse effect on stock prices and creditworthiness and
may make defaults on debt more likely. If a country’s economy
slips into a deflationary pattern, it could last for a prolonged period and may
be difficult to reverse. Further,
there is a risk that the present value of
assets or income from investments will be less in the future, known as
inflation. Inflation rates may change frequently and drastically as a
result of
various factors, including unexpected shifts in the domestic or global economy,
and a fund’s investments may be affected, which may reduce a fund’s
performance. Further, inflation may lead to the rise in interest rates, which
may negatively affect the value of debt instruments held by the fund,
resulting in a negative impact on a fund’s performance. Generally, securities
issued in emerging markets are subject to a greater risk of inflationary
or deflationary forces, and more developed markets are better able to use
monetary policy to normalize markets.
Master
Limited Partnership (MLP) Risk
Investing
in MLPs involves certain risks related to investing in the underlying assets of
MLPs and risks associated with pooled investment vehicles. MLPs
holding credit-related investments are subject to interest-rate risk and the
risk of default on payment obligations by debt securities. In addition,
investments
in the debt and securities of MLPs involve certain other risks, including risks
related to limited control and limited rights to vote on matters
affecting MLPs, risks related to potential conflicts of interest between an MLP
and the MLP’s general partner, cash flow risks, dilution risks and risks
related to the general partner’s right to require unit-holders to sell their
common units at an undesirable time or price. A fund’s investments in MLPs may
be subject to legal and other restrictions on resale or may be less liquid than
publicly traded securities. Certain MLP securities may trade in lower
volumes due to their smaller capitalizations, and may be subject to more abrupt
or erratic price movements and may lack sufficient market liquidity
to enable the fund to effect sales at an advantageous time or without a
substantial drop in price. If a fund is one of the largest investors in an
MLP, it may
be more difficult for the fund to buy and sell significant amounts of such
investments without an unfavorable impact on prevailing market prices.
Larger purchases or sales of MLP investments by a fund in a short period of time
may cause abnormal movements in the market price of these investments.
As a result, these investments may be difficult to dispose of at an advantageous
price when a fund desires to do so. During periods of interest
rate volatility, these investments may not provide attractive returns, which may
adversely impact the overall performance of a fund. MLPs in which a
fund may invest operate oil, natural gas, petroleum, or other facilities within
the energy sector. As a result, a fund will be susceptible to adverse
economic, environmental, or regulatory occurrences impacting the energy
sector.
Reduced
demand for
oil and other energy commodities as a result of the slowdown in economic
activity resulting from the spread of the coronavirus
(COVID-19)
pandemic adversely impacted MLPs. Global oil prices declined significantly at
the beginning of the coronavirus (COVID-19) pandemic and have
experienced significant price volatility,
including a period where an oil-price futures contract fell into negative
territory for the first time in history, as demand
for oil slowed and
oil storage facilities reached their
storage capacities. Varying
levels of demand and production
and continued oil price volatility
may continue to
adversely
impact MLPs and energy infrastructure companies.
To the
extent a distribution received by a fund from an MLP is treated as a return of
capital, the fund’s adjusted tax basis in the interests of the MLP may be
reduced, which will result in an increase in an amount of income or gain (or
decrease in the amount of loss) that will be recognized by the fund for tax
purposes upon the sale of any such interests or upon subsequent distributions in
respect of such interests. After a fund’s tax basis in an MLP has been
reduced to zero, subsequent distributions from the MLP will be treated as
ordinary income. Changes in the tax character of MLP distributions,
as well as late or corrected tax reporting by MLPs, may result in a fund issuing
corrected 1099s to its shareholders.
Mortgage-Backed
and Asset-Backed Securities
Mortgage-Backed
Securities.
Mortgage-backed securities represent participating interests in pools of
residential mortgage loans that are guaranteed
by the U.S. government, its agencies or instrumentalities. However, the
guarantee of these types of securities relates to the principal and interest
payments and not the market value of such securities. In addition, the guarantee
only relates to the mortgage-backed securities held by a fund and not the
purchase of shares of the fund.
Mortgage-backed
securities are issued by lenders such as mortgage bankers, commercial banks, and
savings and loan associations. Such securities differ from
conventional debt securities, which provide for the periodic payment of interest
in fixed amounts (usually semiannually) with principal payments at
maturity or on specified dates. Mortgage-backed securities provide periodic
payments that are, in effect, a “pass-through” of the interest
and
principal payments (including any prepayments) made by the individual borrowers
on the pooled mortgage loans. A mortgage-backed security will mature when
all the mortgages in the pool mature or are prepaid. Therefore, mortgage-backed
securities do not have a fixed maturity, and their expected
maturities may vary when interest rates rise or fall.
When
interest rates fall, homeowners are more likely to prepay their mortgage loans.
An increased rate of prepayments on a fund’s mortgage-backed securities
will result in an unforeseen loss of interest income to the fund as the fund may
be required to reinvest assets at a lower interest rate. Because
prepayments increase when interest rates fall, the prices of mortgage-backed
securities do not increase as much as other fixed-income securities
when interest rates fall.
When
interest rates rise, homeowners are less likely to prepay their mortgage loans.
A decreased rate of prepayments lengthens the expected maturity of a
mortgage-backed security. Therefore, the prices of mortgage-backed securities
may decrease more than prices of other fixed-income securities when
interest rates rise.
The yield
of mortgage-backed securities is based on the average life of the underlying
pool of mortgage loans. The actual life of any particular pool may be
shortened by unscheduled or early payments of principal and interest. Principal
prepayments may result from the sale of the underlying property or the
refinancing or foreclosure of underlying mortgages. The occurrence of
prepayments is affected by a wide range of economic, demographic and
social
factors and, accordingly, it is not possible to accurately predict the average
life of a particular pool. The actual prepayment experience of a pool
of mortgage
loans may cause the yield realized by a fund to differ from the yield calculated
on the basis of the average life of the pool. In addition, if a fund
purchases mortgage-backed securities at a premium, the premium may be lost in
the event of early prepayment, which may result in a loss to the fund.
Prepayments
tend to increase during periods of falling interest rates and decline during
periods of rising interest rates. Monthly interest payments received by
a fund have a compounding effect, which will increase the yield to shareholders
as compared to debt obligations that pay interest semiannually.
Because of the reinvestment of prepayments of principal at current rates,
mortgage-backed securities may be less effective than Treasury
bonds of similar maturity at maintaining yields during periods of declining
interest rates. Also, although the value of debt securities may increase as
interest rates decline, the value of these pass-through type of securities may
not increase as much due to their prepayment feature.
The
mortgage-backed securities market has been and may continue to be negatively
affected by the coronavirus
(COVID-19) pandemic. The U.S. government,
its agencies or its instrumentalities may implement initiatives in response to
the economic impacts of the coronavirus
(COVID-19) pandemic
applicable to federally backed mortgage loans. These initiatives could involve
forbearance of mortgage payments or suspension or restrictions
of foreclosures and evictions. The fund cannot predict with certainty the extent
to which such initiatives or the economic effects of the pandemic
generally may affect rates of prepayment or default or adversely impact the
value of the fund’s investments in securities in the mortgage industry as
a whole.
Collateralized
Mortgage Obligations. CMOs are
mortgage-backed securities issued in separate classes with different stated
maturities. As the mortgage
pool experiences prepayments, the pool pays off investors in classes with
shorter maturities first. By investing in CMOs, a fund may manage the
prepayment risk of mortgage-backed securities. However, prepayments may cause
the actual maturity of a CMO to be substantially shorter than its stated
maturity.
Asset-Backed
Securities.
Asset-backed securities include interests in pools of debt securities,
commercial or consumer loans, or other receivables. The value
of these securities depends on many factors, including changes in interest
rates, the availability of information concerning the pool and its structure,
the credit quality of the underlying assets, the market’s perception of the
servicer of the pool, and any credit enhancement provided. In addition,
asset-backed securities have prepayment risks similar to mortgage-backed
securities.
Multinational
Companies Risk
To the
extent that a fund invests in the securities of companies with foreign business
operations, it may be riskier than funds that focus on companies with
primarily U.S. operations. Multinational companies may face certain political
and economic risks, such as foreign controls over currency exchange;
restrictions on monetary repatriation; possible seizure, nationalization or
expropriation of assets; and political, economic or social instability.
These risks are greater for companies with significant operations in developing
countries.
Natural
Disasters,
Adverse Weather Conditions, and Climate Change
Certain
areas of the world may be exposed to adverse weather conditions, such as major
natural disasters and other extreme weather events, including
hurricanes, earthquakes, typhoons, floods, tidal waves, tsunamis, volcanic
eruptions, wildfires, droughts, windstorms, coastal storm surges, heat waves,
and rising sea levels, among others. Some countries and regions may not have the
infrastructure or resources to respond to natural disasters,
making them more economically sensitive to environmental events. Such disasters,
and the resulting damage, could have a severe and negative
impact on a fund’s investment portfolio and, in the longer term, could impair
the ability of issuers in which a fund invests to conduct their businesses
in the manner normally conducted. Adverse weather conditions also may have a
particularly significant negative effect on issuers in the agricultural
sector and on insurance companies that insure against the impact of natural
disasters.
Climate
change, which is the result of a change in global or regional climate patterns,
may increase the frequency and intensity of such adverse weather
conditions, resulting in increased economic impact, and may pose long-term risks
to a fund’s investments. The future impact of climate change is
difficult to predict but may include changes in demand for certain goods and
services, supply chain disruption, changes in production costs, increased
legislation, regulation,
international accords and compliance-related costs, changes in
property and security values, availability of natural resources
and displacement of peoples.
Legal,
technological, political and scientific developments regarding climate change
may create new opportunities or risks for issuers in which a fund invests.
These developments may create demand for new products or services, including,
but not limited to, increased demand for goods that result in lower
emissions, increased demand for generation and transmission of energy from
alternative energy sources and increased competition to develop innovative
new products and technologies. These developments may also decrease demand for
existing products or services, including, but not limited to,
decreased demand for goods that produce significant greenhouse gas emissions and
decreased demand for services related to carbon based energy
sources, such as drilling services or equipment maintenance
services.
Negative
Interest Rates
Certain
countries have recently experienced negative interest rates on deposits and debt
instruments have traded at negative yields. A negative interest
rate policy is an unconventional central bank monetary policy tool where nominal
target interest rates are set with a negative value (i.e., below zero
percent) intended to help create self-sustaining growth in the local economy.
Negative interest rates may become more prevalent among non-U.S. issuers,
and potentially within the U.S. For example, if a bank charges negative
interest, instead of receiving interest on deposits, a depositor must pay
the bank
fees to keep money with the bank.
These
market conditions may increase a fund’s exposures to interest rate risk. To the
extent a fund has a bank deposit or holds a debt instrument with a negative
interest rate to maturity, the fund would generate a negative return on that
investment. While negative yields can be expected to reduce demand for
fixed-income investments trading at a negative interest rate, investors may be
willing to continue to purchase such investments for a number of
reasons including, but not limited to, price insensitivity, arbitrage
opportunities across fixed-income markets or rules-based investment strategies.
If negative interest rates become more prevalent in the market, it is expected
that investors will seek to reallocate assets to other income-producing
assets such as investment grade and high-yield debt instruments, or equity
investments that pay a dividend. This increased demand for higher
yielding assets may cause the price of such instruments to rise while triggering
a corresponding decrease in yield and the value of debt instruments
over time.
Non-Diversification
A fund that
is non-diversified is not limited as to the percentage of its assets that may be
invested in any one issuer, or as to the percentage of the outstanding
voting securities of such issuer that may be owned, except by the fund’s own
investment restrictions. In contrast, a diversified fund, as to at least
75% of the value of its total assets, generally may not, except with respect to
government securities and securities of other investment companies,
invest more than five percent of its total assets in the securities, or own more
than ten percent of the outstanding voting securities, of any one issuer.
In determining the issuer of a municipal security, each state, each political
subdivision, agency, and instrumentality of each state and each multi-state
agency of which such state is a member is considered a separate issuer. In the
event that securities are backed only by assets and revenues of
a particular instrumentality, facility or subdivision, such entity is considered
the issuer.
A fund that
is non-diversified may invest a high percentage of its assets in the securities
of a small number of issuers, may invest more of its assets in the
securities of a single issuer, and may be affected more than a diversified fund
by a change in the financial condition of any of these issuers or by
the
financial markets’ assessment of any of these issuers.
Operational
and Cybersecurity Risk
With the
increased use of technologies, such as mobile devices and “cloud”-based service
offerings and the dependence on the internet and computer systems to
perform necessary business functions, a fund’s service providers are susceptible
to operational and information or cybersecurity risks that could
result in losses to the fund and its shareholders. Cybersecurity breaches are
either intentional or unintentional events that allow an unauthorized
party to
gain access to fund assets, customer data, or proprietary information, or cause
a fund or fund service provider to suffer data corruption or lose
operational functionality. Intentional cybersecurity incidents include:
unauthorized access to systems, networks, or devices (such as through
“hacking”
activity or “phishing”); infection from computer viruses or other malicious
software code; and attacks that shut down, disable, slow, or otherwise
disrupt operations, business processes, or website access or functionality.
Cyberattacks can also be carried out in a manner that does not require
gaining unauthorized access, such as causing denial-of-service attacks on the
service providers’ systems or websites rendering them unavailable
to intended users or via “ransomware” that renders the systems inoperable until
appropriate actions are taken. In addition, unintentional incidents
can occur, such as the inadvertent release of confidential
information.
A
cybersecurity breach could result in the loss or theft of customer data or
funds, loss or theft of proprietary information or corporate data, physical
damage to a
computer or network system, or costs associated with system repairs, any of
which could have a substantial impact on a fund. For example, in
a denial of service, fund shareholders could lose access to their electronic
accounts indefinitely, and employees of the Advisor, each subadvisor,
or the funds’ other service providers may not be able to access electronic
systems to perform critical duties for the funds, such as trading, NAV
calculation, shareholder accounting, or fulfillment of fund share purchases and
redemptions. Cybersecurity incidents could cause a fund, the Advisor,
each subadvisor, or other service provider to incur regulatory penalties,
reputational damage, compliance costs associated with corrective measures,
litigation costs, or financial loss. They may also result in violations of
applicable privacy and other laws. In addition, such incidents could
affect
issuers in which a fund invests, thereby causing the fund’s investments to lose
value.
Cyber-events
have the potential to affect materially the funds and the advisor’s
relationships with accounts, shareholders, clients, customers, employees,
products, and service providers. The funds have established risk management
systems reasonably designed to seek to reduce the risks associated
with cyber-events. There is no guarantee that the funds will be able to prevent
or mitigate the impact of any or all cyber-events.
The funds
are exposed to operational risk arising from a number of factors, including, but
not limited to, human error, processing and communication errors,
errors of the funds’ service providers, counterparties, or other third parties,
failed or inadequate processes, and technology or system
failures.
The
Advisor, each subadvisor, and their affiliates have established risk management
systems that seek to reduce cybersecurity and operational risks, and
business continuity plans in the event of a cybersecurity breach or operational
failure. However, there are inherent limitations in such plans, including
that certain risks have not been identified, and there is no guarantee that such
efforts will succeed, especially since none of the Advisor, each subadvisor,
or their affiliates controls the cybersecurity or operations systems of the
funds’ third-party service providers (including the funds’ custodian),
or those of the issuers of securities in which the funds invest.
In
addition, other disruptive events, including (but not limited to) natural
disasters and public health crises (such as the coronavirus
(COVID-19) pandemic),
may adversely affect the fund’s ability to conduct business, in particular if
the fund’s employees or the employees of its service providers are unable
or unwilling to perform their responsibilities as a result of any such event.
Even if the fund’s employees and the employees of its service providers
are able to work remotely, those remote work arrangements could result in the
fund’s business operations being less efficient than under normal
circumstances, could lead to delays in its processing of transactions, and could
increase the risk of cyber-events.
Privately
Held and Newly Public Companies
Investments
in the stocks of privately held companies and newly public companies involve
greater risks than investments in stocks of companies that have traded
publicly on an exchange for extended time periods. Investments in such companies
are less liquid and may be difficult to value. There may be
significantly less information available about these companies’ business models,
quality of management, earnings growth potential, and other criteria
used to evaluate their investment prospects. The extent (if at all) to which
securities of privately held companies or newly public companies may be sold
without negatively impacting its market value may be impaired by reduced market
activity or participation, legal restrictions, or other economic
and market impediments. Funds that invest in securities of privately held
companies tend to have a greater exposure to liquidity risk than funds that
do not invest in securities of privately held companies.
Rebalancing
Risks Involving Funds of Funds
The funds
of funds seek to achieve their investment objectives by investing in, among
other things, other John Hancock funds, as permitted by Section 12 of the
1940 Act (affiliated underlying funds). In addition, a fund that is not a fund
of funds may serve as an affiliated underlying fund for one or more funds
of funds. The funds of funds will reallocate or rebalance assets among the
affiliated underlying funds (collectively, “Rebalancings”) on a daily
basis. The following discussion provides information on the risks related to
Rebalancings, which risks are applicable to the affiliated underlying
funds
undergoing Rebalancings, as well as to those funds of funds that hold affiliated
underlying funds undergoing Rebalancings.
From time
to time, one or more of the affiliated underlying funds may experience
relatively large redemptions or investments due to Rebalancings, as effected by
the funds of funds’ Affiliated Subadvisor. Shareholders should note that
Rebalancings may adversely affect the affiliated underlying funds. The
affiliated underlying funds subject to redemptions by a fund of funds may find
it necessary to sell securities, and the affiliated underlying funds
that
receive additional cash from a fund of funds will find it necessary to invest
the cash. The impact of Rebalancings is likely to be greater when a fund
of funds
owns, redeems, or invests in, a substantial portion of an affiliated underlying
fund. Rebalancings could adversely affect the performance of one or more
affiliated underlying funds and, therefore, the performance of one or more funds
of funds.
Possible
adverse effects of Rebalancings on the affiliated underlying funds
include:
1 |
The
affiliated underlying funds could be required to sell securities or to
invest cash, at times when they may not otherwise desire to do
so. |
2 |
Rebalancings
may increase brokerage and/or other transaction costs of the affiliated
underlying funds. |
3 |
When
a fund of funds owns a substantial portion of an affiliated underlying
fund, a large redemption by the fund of funds could cause that affiliated
underlying
fund’s expenses to increase and could result in its portfolio becoming too
small to be economically viable. |
4 |
Rebalancings
could accelerate the realization of taxable capital gains in affiliated
underlying funds subject to large redemptions if sales of securities
results in capital gains. |
The
Advisor, which serves as the investment advisor to both the funds of funds and
the affiliated underlying funds, has delegated the day-to-day portfolio
management of the funds of funds and many of the affiliated underlying funds to
the Affiliated Subadvisors, affiliates of the Advisor. The Advisor
monitors both the funds and the affiliated underlying funds. The Affiliated
Subadvisors manage the assets of both the funds and many of the affiliated
underlying funds (the “Affiliated Subadvised Funds”). The Affiliated Subadvisors
may allocate up to all of a funds of funds’ assets to Affiliated Subadvised
Funds and accordingly has an incentive to allocate more fund of funds assets to
such Affiliated Subadvised Funds. The Advisor and the Affiliated
Subadvisors monitor the impact of Rebalancings on the affiliated underlying
funds and attempt to minimize any adverse effect of the Rebalancings
on the underlying funds, consistent with pursuing the investment objective of
the relevant affiliated underlying funds. Moreover, an Affiliated
Subadvisor has a duty to allocate assets to an Affiliated Subadvised Fund only
when such Subadvisor believes it is in the best interests of fund of funds
shareholders. Minimizing any adverse effect of the Rebalancings on the
underlying funds may impact the redemption schedule in connection with a
Rebalancing. As part of its oversight of the funds and the subadvisors, the
Advisor will monitor to ensure that allocations are conducted in accordance
with these principles. This conflict of interest is also considered by the
Independent Trustees when approving or replacing affiliated subadvisors
and in periodically reviewing allocations to Affiliated Subadvised
Funds.
As
discussed above, the funds of funds periodically reallocate their investments
among underlying investments. In an effort to be fully invested at all
times and
also to avoid temporary periods of under-investment, an affiliated underlying
fund may buy securities and other instruments in anticipation of or with
knowledge of future purchases of affiliated underlying fund shares resulting
from a reallocation of assets by the funds of funds to the affiliated
underlying fund. Until such purchases of affiliated underlying fund shares by a
fund of funds settle (normally between one and three days), the
affiliated underlying fund may have investment exposure in excess of its net
assets. Shareholders who transact with the affiliated underlying fund
during the
period beginning when the affiliated underlying fund first starts buying
securities in anticipation of a purchase order from a fund until such
purchase
order settles may incur more loss or realize more gain than they otherwise might
have in the absence of the excess investment exposure. The funds of
funds may purchase and redeem shares of underlying funds each business day
through the use of an algorithm that operates pursuant to standing
instructions to allocate purchase and redemption orders among underlying funds.
Each day, pursuant to the algorithm, a fund of funds will purchase or
redeem shares of an underlying fund at the NAV for the underlying fund
calculated that day. This algorithm is used solely for rebalancing a
fund of
funds’ investments in an effort to maintain previously determined allocation
percentages.
Restricted
Securities
A fund may
invest in “restricted securities,” which generally are securities that may be
resold to the public only pursuant to an effective registration statement
under the 1933 Act or an exemption from registration. Regulation S under the
1933 Act is an exemption from registration that permits, under
certain circumstances, the resale of restricted securities in offshore
transactions, subject to certain conditions, and Rule 144A under the 1933
Act is an
exemption that permits the resale of certain restricted securities to qualified
institutional buyers.
Since its
adoption by the SEC in 1990, Rule 144A has facilitated trading of restricted
securities among qualified institutional investors. To the extent restricted
securities held by a fund qualify under Rule 144A and an institutional market
develops for those securities, the fund expects that it will be able to
dispose of the securities without registering the resale of such securities
under the 1933 Act. However, to the extent that a robust market for such 144A
securities does not develop, or a market develops but experiences periods of
illiquidity, investments in Rule 144A securities could increase the level
of a fund’s illiquidity. A fund might have to register restricted securities in
order to dispose of them, resulting in additional expense and delay.
Adverse
market conditions could impede such a public offering of
securities.
There is a
large institutional market for certain securities that are not registered under
the 1933 Act, which may include markets for repurchase agreements,
commercial paper, foreign securities, municipal securities, loans and corporate
bonds and notes. Institutional investors depend on an efficient
institutional market in which the unregistered security can be readily resold or
on an issuer’s ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments.
Russian
Securities Risk
Throughout
the past decade, the United States, the EU, and other nations have imposed a
series of economic sanctions on the Russian Federation. In addition to
imposing new import and export controls on Russia and blocking financial
transactions with certain Russian elites, oligarchs, and political and
national security leaders, the United States, the EU, and other nations have
imposed sanctions on companies
in certain sectors of the Russian economy,
including
the financial
services, energy, metals and mining, engineering, technology,
and defense
and defense-related materials
sectors. These
sanctions could impair a fund’s ability to continue to price, buy,
sell, receive, or deliver securities of certain Russian
issuers. For example, a fund may be
prohibited from investing in securities issued by companies subject to such
sanctions. A fund
could determine at any time that certain of the most
affected securities have little or no value.
The extent
and duration of Russia’s military actions and the global response to such
actions are impossible to predict. More Russian companies could be
sanctioned in the future, and the threat of additional sanctions could itself
result in further declines in the value and liquidity of certain securities.
Widespread
divestment of interests in Russia or certain Russian businesses could result in
additional declines in the value of Russian securities. Additionally,
market disruptions could have a substantial negative impact on other economics
and securities markets both regionally and globally, as well as
global supply chains and inflation.
The Russian
government may respond to these sanctions and others by freezing Russian assets
held by a fund, thereby prohibiting the fund from selling or
otherwise transacting in these investments. In such circumstances, a fund might
be forced to liquidate non-restricted assets in order to satisfy
shareholder redemptions. Such liquidation of fund assets might also result in a
fund receiving substantially lower prices for its portfolio securities.
Securities
Linked to the Real Estate Market
Investing
in securities of companies in the real estate industry subjects a fund to the
risks associated with the direct ownership of real estate. These risks
include, but are not limited to:
• |
declines
in the value of real estate; |
• |
risks
related to general and local economic
conditions; |
• |
possible
lack of availability of mortgage
portfolios; |
• |
extended
vacancies of properties; |
• |
increases
in property taxes and operating expenses; |
• |
losses
due to costs resulting from the clean-up of environmental
problems; |
• |
liability
to third parties for damages resulting from environmental
problems; |
• |
casualty
or condemnation losses; |
• |
changes
in neighborhood values and the appeal of properties to tenants;
and |
• |
changes
in interest rates. |
Therefore,
if a fund invests a substantial amount of its assets in securities of companies
in the real estate industry, the value of the fund’s shares may change at
different rates compared to the value of shares of a fund with investments in a
mix of different industries.
Securities
of companies in the real estate industry have been and may continue to be
negatively affected by the coronavirus
(COVID-19) pandemic. Potential
impacts on the real estate market may include lower occupancy rates, decreased
lease payments, defaults and foreclosures, among other consequences.
These impacts could adversely affect corporate borrowers and mortgage lenders,
the value of mortgage-backed securities, the bonds of
municipalities that depend on tax revenues and tourist dollars generated by such
properties, and insurers of the property and/or of corporate, municipal
or mortgage-backed securities. It is not known how long such impacts, or any
future impacts of other significant events, will last.
Securities
of companies in the real estate industry include REITs, including equity REITs
and mortgage REITs. Equity REITs may be affected by changes in the
value of the underlying property owned by the trusts, while mortgage REITs may
be affected by the quality of any credit extended. Further, equity and
mortgage REITs are dependent upon management skills and generally may not be
diversified. Equity and mortgage REITs also are subject to heavy cash flow
dependency, defaults by borrowers or lessees, and self-liquidations. In
addition, equity, mortgage, and hybrid REITs could possibly fail to qualify for
tax free pass-through of income under the Code, or to maintain their exemptions
from registration under the 1940 Act. The above factors also may
adversely affect a borrower’s or a lessee’s ability to meet its obligations to a
REIT. In the event of a default by a borrower or lessee, a REIT may experience
delays in enforcing its rights as a mortgagee or lessor and may incur
substantial costs associated with protecting its investments.
In
addition, even the larger REITs in the industry tend to be small to medium-sized
companies in relation to the equity markets as a whole. See “Small and Medium
Size and Unseasoned Companies” for a discussion of the risks associated with
investments in these companies.
Small
and Medium Size and Unseasoned Companies
Survival
of Small or Unseasoned Companies. Companies
that are small or unseasoned (i.e., less than three years of operating history)
are more likely than
larger or established companies to fail or not to accomplish their goals. As a
result, the value of their securities could decline significantly. These
companies are less likely to survive since they are often dependent upon a small
number of products and may have limited financial resources and a small
management group.
Changes
in Earnings and Business Prospects. Small or
unseasoned companies often have a greater degree of change in earnings and
business prospects
than larger or established companies, resulting in more volatility in the price
of their securities.
Liquidity. The
securities of small or unseasoned companies may have limited marketability. This
factor could cause the value of a fund’s investments to decrease
if it needs to sell such securities when there are few interested
buyers.
Impact
of Buying or Selling Shares. Small or
unseasoned companies usually have fewer outstanding shares than larger or
established companies. Therefore,
it may be more difficult to buy or sell large amounts of these shares without
unfavorably impacting the price of the security.
Publicly
Available Information. There may
be less publicly available information about small or unseasoned companies.
Therefore, when making a decision to
purchase a security for a fund, a subadvisor may not be aware of problems
associated with the company issuing the security.
Medium
Size Companies.
Investments in the securities of medium sized companies present risks similar to
those associated with small or unseasoned
companies although to a lesser degree due to the larger size of the
companies.
Special
Purpose Acquisition Companies
A fund may
invest in stock, warrants, and other securities of SPACs or similar special
purpose entities that pool funds to seek potential acquisition opportunities.
SPACs are collective investment structures that allow public stock market
investors to invest in private equity type transactions (“PIPE”). Until an
acquisition is completed, a SPAC generally invests its assets in US government
securities, money market securities and cash. A fund may enter into
a contingent commitment with a SPAC to purchase PIPE shares if and when the SPAC
completes its merger or acquisition.
Because
SPACs and similar entities do not have an operating history or ongoing business
other than seeking acquisitions, the value of their securities is
particularly dependent on the ability of the SPAC’s management to identify and
complete a profitable acquisition. Some SPACs may pursue acquisitions
only within certain industries or regions, which may increase the volatility of
their prices. An investment in a SPAC is subject to a variety of risks,
including that (i) a significant portion of the monies raised by the SPAC for
the purpose of identifying and effecting an acquisition or merger may
be expended
during the search for a target transaction; (ii) an attractive acquisition or
merger target may not be identified at all and the SPAC will be required to
return any remaining monies to shareholders; (iii) any proposed merger or
acquisition may be unable to obtain the requisite approval, if any, of
shareholders; (iv) an acquisition or merger once effected may prove unsuccessful
and an investment in the SPAC may lose value; (v) the warrants or
other rights with respect to the SPAC held by a fund may expire worthless or may
be repurchased or retired by the SPAC at an unfavorable price; (vi)
a fund may be delayed in receiving any redemption or liquidation proceeds from a
SPAC to which it is entitled; (vii) an investment in a SPAC may be
diluted by additional later offerings of interests in the SPAC or by other
investors exercising existing rights to purchase shares of the SPAC;
(viii) no
or only a thinly traded market for shares of or interests in a SPAC may develop,
leaving a fund unable to sell its interest in a SPAC or to sell its interest
only at a price below what the fund believes is the SPAC interest’s intrinsic
value; and (ix) the values of investments in SPACs may be highly volatile
and may depreciate significantly over time.
Purchased
PIPE shares will be restricted from trading until the registration statement for
the shares is declared effective. Upon registration, the shares can be
freely sold; however, in certain circumstances, the issuer may have the right to
temporarily suspend trading of the shares in the first year after
the merger.
The securities issued by a SPAC, which are typically traded either in the
over-the-counter market or on an exchange, may be considered illiquid,
more difficult to value, and/or be subject to restrictions on
resale.
Stripped
Securities
Stripped
securities are the separate income or principal components of a debt security.
The risks associated with stripped securities are similar to those of
other debt securities, although stripped securities may be more volatile, and
the value of certain types of stripped securities may move in the same
direction as interest rates. U.S. Treasury securities that have been stripped by
a Federal Reserve Bank are obligations issued by the U.S. Treasury.
U.S.
Government Securities
U.S.
government securities include securities issued or guaranteed by the U.S.
government or by an agency or instrumentality of the U.S. government.
Not all
U.S. government securities are backed by the full faith and credit of the United
States. Some are supported only by the credit of the issuing agency or
instrumentality, which depends entirely on its own resources to repay the debt.
U.S. government securities that are backed by the full faith and credit
of the United States include U.S. Treasuries and mortgage-backed securities
guaranteed by GNMA. Securities that are only supported by the credit
of the issuing agency or instrumentality include those issued by Fannie Mae, the
FHLBs and Freddie Mac.
REGULATION
OF COMMODITY INTERESTS
The CFTC
has adopted regulations that subject registered investment companies and/or
their investment advisors to regulation by the CFTC if the registered
investment company invests more than a prescribed level of its NAV in commodity
futures, options on commodities or commodity futures, swaps, or
other financial instruments regulated under the CEA (“commodity interests”), or
if the registered investment company markets itself as providing
investment exposure to such commodity interests. The Advisor is registered as a
CPO under the CEA and is a National Futures Association member
firm; however, the Advisor does not
act in the capacity of a registered CPO with respect to the funds.
Although
the Advisor is a registered CPO and is a National Futures Association member
firm, the Advisor has claimed an exemption from CPO registration
pursuant to CFTC Rule 4.5 with respect to the funds. To remain eligible for this
exemption, each fund must comply with certain limitations, including
limits on trading in commodity interests, and restrictions on the manner in
which the fund markets its commodity interests trading activities. These
limitations may restrict a fund’s ability to pursue its investment strategy,
increase the costs of implementing its strategy, increase its expenses
and/or
adversely affect its total return.
Please see
“Risk of Additional Government Regulation of Derivatives” for more information
regarding governmental regulations of derivatives and similar
transactions.
HEDGING
AND OTHER STRATEGIC TRANSACTIONS
Hedging
refers to protecting against possible changes in the market value of securities
or other assets that a fund already owns or plans to buy or protecting
unrealized gains in the fund. These strategies also may be used to gain exposure
to a particular market. The hedging and other strategic transactions
that may be used by a fund, but only if and to the extent that such transactions
are consistent with its investment objective and policies, are
described below:
• |
exchange-listed
and OTC put and call options on securities, equity indices, volatility
indices, financial futures contracts, currencies, fixed-income
indices
and other financial instruments; |
• |
financial
futures contracts (including stock index
futures); |
• |
interest
rate transactions;* |
• |
currency
transactions;** |
• |
warrants
and rights (including non-standard warrants and participatory
risks); |
• |
swaps
(including interest rate, index, dividend, inflation, variance, equity,
and volatility swaps, credit default swaps, swap options and currency
swaps);
and |
• |
structured
notes, including hybrid or “index”
securities. |
* A fund’s
interest rate transactions may take the form of swaps, caps, floors and
collars.
** A fund’s
currency transactions may take the form of currency forward contracts, currency
futures contracts, currency swaps and options on currencies
or currency futures contracts.
Hedging and
other strategic transactions may be used for the following
purposes:
• |
to
attempt to protect against possible changes in the market value of
securities held or to be purchased by a fund resulting from securities
markets or
currency exchange rate fluctuations; |
• |
to
protect a fund’s unrealized gains in the value of its
securities; |
• |
to
facilitate the sale of a fund’s securities for investment
purposes; |
• |
to
manage the effective maturity or duration of a fund’s
securities; |
• |
to
establish a position in the derivatives markets as a method of gaining
exposure to a particular geographic region, market, industry, issuer, or
security;
or |
• |
to
increase exposure to a foreign currency or to shift exposure to foreign
currency fluctuations from one country to
another. |
To the
extent that a fund uses hedging or another strategic transaction to gain, shift
or manage exposure to a particular geographic region, market, industry,
issuer, security, currency, or other asset, the fund will be exposed to the
risks of investing in that asset as well as the risks inherent in the
specific
hedging or other strategic transaction used to gain such exposure.
For
purposes of determining compliance with a fund’s investment policies, strategies
and restrictions, the fund will generally consider the market value of
derivative instruments, unless the nature of the derivative instrument warrants
the use of the instrument’s notional value to more accurately reflect
the
economic exposure represented by the derivative position.
Because of
the uncertainties under federal tax laws as to whether income from
commodity-linked derivative instruments and certain other instruments
would
constitute “qualifying income” to a RIC, no fund is permitted to invest in such
instruments unless a subadvisor obtains prior written approval from the
Trusts’ CCO. The CCO, as a member of the Advisor’s Complex Securities Committee,
evaluates with the committee the appropriateness of the investment.
General
Characteristics of Options
Put options
and call options typically have similar structural characteristics and
operational mechanics regardless of the underlying instrument on which they
are purchased or sold. Many hedging and other strategic transactions involving
options require segregation of portfolio assets in special accounts,
as described under “Use of Segregated and Other Special Accounts.”
Put
Options. A put
option gives the purchaser of the option, upon payment of a premium, the right
to sell (and the writer the obligation to buy) the underlying
security, commodity, index, currency or other instrument at the exercise price.
A fund’s purchase of a put option on a security, for example, might be
designed to protect its holdings in the underlying instrument (or, in some
cases, a similar instrument) against a substantial decline in the market
value of such instrument by giving a fund the right to sell the instrument at
the option exercise price.
If, and to
the extent authorized to do so, a fund may, for various purposes, purchase and
sell put options on securities (whether or not it holds the securities
in its portfolio) and on securities indices, currencies and futures contracts.
A fund will
not sell put options if, as a result, more than 50% of the fund’s
assets would be required to be segregated to cover its potential obligations
under put options other than those with respect to futures contracts.
Risk of
Selling Put Options. In selling
put options, a fund faces the risk that it may be required to buy the underlying
security at a disadvantageous price above
the market price.
Call
Options. A call
option, upon payment of a premium, gives the purchaser of the option the right
to buy (and the seller the obligation to sell) the underlying
instrument at the exercise price. A fund’s purchase of a call option on an
underlying instrument might be intended to protect a fund against an increase
in the price of the underlying instrument that it intends to purchase in the
future by fixing the price at which it may purchase the instrument.
An “American” style put or call option may be exercised at any time during the
option period, whereas a “European” style put or call option may be
exercised only upon expiration or during a fixed period prior to expiration. If
and to the extent authorized to do so, a fund may purchase and sell call
options on securities (whether or not it holds the securities).
Partial
Hedge or Income to a Fund. If a fund
sells a call option, the premium that it receives may serve as a partial hedge,
to the extent of the option premium,
against a decrease in the value of the underlying securities or instruments held
by a fund or will increase a fund’s income. Similarly, the sale of put
options also can provide fund gains.
Covering
of Options. All call
options sold by a fund must be “covered” (that is, the fund must own the
securities or futures contract subject to the call or must
otherwise meet the asset segregation requirements described below for so long as
the call is outstanding).
Risk of
Selling Call Options. Even
though a fund will receive the option premium to help protect it against loss, a
call option sold by a fund will expose it
during the term of the option to possible loss of the opportunity to sell the
underlying security or instrument with a gain.
Exchange-listed
Options.
Exchange-listed options are issued by a regulated intermediary such as the
Options Clearing Corporation (the “OCC”), which
guarantees the performance of the obligations of the parties to the options. The
discussion below uses the OCC as an example, but also is applicable
to other similar financial intermediaries.
OCC-issued
and exchange-listed options, with certain exceptions, generally settle by
physical delivery of the underlying security or currency, although in the
future, cash settlement may become available. Index options and Eurodollar
instruments (which are described below under “Eurodollar Instruments”)
are cash settled for the net amount, if any, by which the option is
“in-the-money” at the time the option is exercised. “In-the-money” means the
amount by which the value of the underlying instrument exceeds, in the case of a
call option, or is less than, in the case of a put option, the exercise
price of the option. Frequently, rather than taking or making delivery of the
underlying instrument through the process of exercising the option,
listed options are closed by entering into offsetting purchase or sale
transactions that do not result in ownership of the new option.
A fund’s
ability to close out its position as a purchaser or seller of an OCC-issued or
exchange-listed put or call option is dependent, in part, upon the liquidity
of the particular option market. Among the possible reasons for the absence of a
liquid option market on an exchange are:
• |
insufficient
trading interest in certain options; |
• |
restrictions
on transactions imposed by an exchange; |
• |
trading
halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities,
including reaching
daily price limits; |
• |
interruption
of the normal operations of the OCC or an
exchange; |
• |
inadequacy
of the facilities of an exchange or the OCC to handle current trading
volume; or |
• |
a
decision by one or more exchanges to discontinue the trading of options
(or a particular class or series of options), in which event the relevant
market
for that option on that exchange would cease to exist, although any such
outstanding options on that exchange would continue to be exercisable
in accordance with their terms. |
The hours
of trading for listed options may not coincide with the hours during which the
underlying financial instruments are traded. To the extent that the option
markets close before the markets for the underlying financial instruments,
significant price and rate movements can take place in the underlying
markets that would not be reflected in the corresponding option
markets.
OTC
Options. OTC
options are purchased from or sold to counterparties such as securities dealers
or financial institutions through direct bilateral agreement
with the counterparty. In contrast to exchange-listed options, which generally
have standardized terms and performance mechanics, all of the terms
of an OTC option, including such terms as method of settlement, term, exercise
price, premium, guaranties and security, are determined by negotiation
of the parties. It is anticipated that a fund authorized to use OTC options
generally will only enter into OTC options that have cash settlement
provisions, although it will not be required to do so.
Unless the
parties provide for it, no central clearing or guaranty function is involved in
an OTC option. As a result, if a counterparty fails to make or take delivery of
the security, currency or other instrument underlying an OTC option it has
entered into with a fund or fails to make a cash settlement payment due
in accordance with the terms of that option, the fund will lose any premium it
paid for the option as well as any anticipated benefit of the transaction.
Thus, a subadvisor must assess the creditworthiness of each such counterparty or
any guarantor or credit enhancement of the counterparty’s
credit to determine the likelihood that the terms of the OTC option will be met.
A fund will enter into OTC option transactions only with U.S.
government securities dealers recognized by the Federal Reserve Bank of New York
as “primary dealers,” or broker dealers, domestic or foreign banks, or
other financial institutions that are deemed creditworthy by a subadvisor. In
the absence of a change in the current position of the SEC’s staff, OTC
options purchased by a fund and the amount of the fund’s obligation pursuant to
an OTC option sold by the fund (the cost of the sell-back plus the
in-the-money amount, if any) or the value of the assets held to cover such
options will be deemed illiquid.
Types of
Options That May Be Purchased. A fund may
purchase and sell call options on securities indices, currencies, and futures
contracts, as well as on
Eurodollar instruments that are traded on U.S. and foreign securities exchanges
and in the OTC markets.
General
Characteristics of Futures Contracts and Options on Futures
Contracts
A fund may
trade financial futures contracts (including stock index futures contracts,
which are described below) or purchase or sell put and call options on
those contracts for the following purposes:
• |
as a
hedge against anticipated interest rate, currency or market
changes; |
• |
for
duration management; |
• |
for
risk management purposes; and |
• |
to
gain exposure to a securities market. |
Futures
contracts are generally bought and sold on the commodities exchanges where they
are listed with payment of initial and variation margin as described
below. The sale of a futures contract creates a firm obligation by a fund, as
seller, to deliver to the buyer the specific type of financial instrument
called for in the contract at a specific future time for a specified price (or,
with respect to certain instruments, the net cash amount). Options on
futures contracts are similar to options on securities except that an option on
a futures contract gives the purchaser the right, in return for the premium
paid, to assume a position in a futures contract and obligates the seller to
deliver that position.
With
respect to futures contracts that are not legally required to “cash settle,” a
fund may cover the open position by setting aside or earmarking liquid
assets in
an amount equal to the market value of the futures contract. With respect to
futures that are required to “cash settle,” such as Eurodollar, UK 90 day and
Euribor futures; however, a fund is permitted to set aside or earmark liquid
assets in an amount equal to the fund’s daily marked to market (net)
obligation, if any, (in other words, the fund’s daily net liability, if any)
rather than the market value of the futures contract. By setting aside assets
equal to
only its net obligation under cash-settled futures contracts, a fund will have
the ability to employ such futures contracts to a greater extent than if the
fund were required to segregate assets equal to the full market value of the
futures contract.
A fund will
engage in transactions in futures contracts and related options only to the
extent such transactions are consistent with the requirements of the Code in
order to maintain its qualification as a RIC for federal income tax
purposes.
Margin.
Maintaining a futures contract or selling an option on a futures contract will
typically require a fund to deposit with a financial intermediary, as security
for its obligations, an amount of cash or other specified assets (“initial
margin”) that initially is from 1% to 10% of the face amount of the contract
(but may be higher in some circumstances). Additional cash or assets (“variation
margin”) may be required to be deposited thereafter daily as the
mark-to-market value of the futures contract fluctuates. The purchase of an
option on a financial futures contract involves payment of a premium
for the
option without any further obligation on the part of a fund. If a fund exercises
an option on a futures contract it will be obligated to post initial
margin (and
potentially variation margin) for the resulting futures position just as it
would for any futures position.
Settlement. Futures
contracts and options thereon are generally settled by entering into an
offsetting transaction, but no assurance can be given that a position
can be offset prior to settlement or that delivery will
occur.
Value of
Futures Contracts Sold by a Fund. The value
of all futures contracts sold by a fund (adjusted for the historical volatility
relationship between
such fund and the contracts) will not exceed the total market value of the
fund’s assets.
Stock
Index Futures
Definition. A stock
index futures contract (an “Index Future”) is a contract to buy a certain number
of units of the relevant index at a specified future date at a
price agreed upon when the contract is made. A unit is the value at a given time
of the relevant index.
Uses of
Index Futures. Below are
some examples of how a fund may use Index Futures:
• |
In
connection with a fund’s investment in equity securities, a fund may
invest in Index Futures while a subadvisor seeks favorable terms from
brokers to
effect transactions in equity securities selected for
purchase. |
• |
A
fund also may invest in Index Futures when a subadvisor believes that
there are not enough attractive equity securities available to maintain
the standards
of diversity and liquidity set for the fund’s pending investment in such
equity securities when they do become
available. |
• |
Through
the use of Index Futures, a fund may maintain a pool of assets with
diversified risk without incurring the substantial brokerage costs that
may
be associated with investment in multiple issuers. This may permit a fund
to avoid potential market and liquidity problems (e.g., driving up or
forcing
down the price by quickly purchasing or selling shares of a portfolio
security) that may result from increases or decreases in positions
already
held by a fund. |
• |
A
fund also may invest in Index Futures in order to hedge its equity
positions. |
Hedging and
other strategic transactions involving futures contracts, options on futures
contracts and swaps will be purchased, sold or entered into primarily
for bona fide hedging, risk management (including duration management) or
appropriate portfolio management purposes, including gaining exposure to
a particular securities market.
Options
on Securities Indices and Other Financial Indices
A fund may
purchase and sell call and put options on securities indices and other financial
indices (“Options on Financial Indices”). In so doing, a fund may achieve
many of the same objectives it would achieve through the sale or purchase of
options on individual securities or other instruments.
Description
of Options on Financial Indices. Options on
Financial Indices are similar to options on a security or other instrument
except that, rather than
settling by physical delivery of the underlying instrument, Options on Financial
Indices settle by cash settlement. Cash settlement means that the
holder has the right to receive, upon exercise of the option, an amount of cash
if the closing level of the index upon which the option is based exceeds, in
the case of a call (or is less than, in the case of a put) the exercise price of
the option. This amount of cash is equal to the excess of the closing
price of the index over the exercise price of the option, which also may be
multiplied by a formula value. The seller of the option is obligated to
make
delivery of this amount. The gain or loss on an option on an index depends on
price movements in the instruments comprising the market or other
composite on which the underlying index is based, rather than price movements in
individual securities, as is the case for options on securities. In the case
of an OTC option, physical delivery may be used instead of cash settlement. By
purchasing or selling Options on Financial Indices, a fund may achieve
many of the same objectives it would achieve through the sale or purchase of
options on individual securities or other instruments.
Yield
Curve Options
A fund also
may enter into options on the “spread,” or yield differential, between two
fixed-income securities, in transactions referred to as “yield curve”
options. In
contrast to other types of options, a yield curve option is based on the
difference between the yields of designated securities, rather than the prices
of the individual securities, and is settled through cash payments. Accordingly,
a yield curve option is profitable to the holder if this differential
widens (in the case of a call) or narrows (in the case of a put), regardless of
whether the yields of the underlying securities increase or decrease.
Yield curve
options may be used for the same purposes as other options on securities.
Specifically, a fund may purchase or write such options for hedging
purposes. For example, a fund may purchase a call option on the yield spread
between two securities, if it owns one of the securities and anticipates
purchasing the other security and wants to hedge against an adverse change in
the yield spread between the two securities. A fund also may
purchase or write yield curve options for other than hedging purposes (i.e., in
an effort to increase its current income) if, in the judgment of a subadvisor,
the fund will be able to profit from movements in the spread between the yields
of the underlying securities. The trading of yield curve options is
subject to all of the risks associated with the trading of other types of
options. In addition, however, such options present risk of loss even if
the yield
of one of the underlying securities remains constant, if the spread moves in a
direction or to an extent which was not anticipated. Yield curve options
written by a fund will be “covered.” A call (or put) option is covered if a fund
holds another call (or put) option on the spread between the same two
securities and owns liquid and unencumbered assets sufficient to cover the
fund’s net liability under the two options. Therefore, a fund’s liability for
such a
covered option is generally limited to the difference between the amounts of the
fund’s liability under the option written by the fund less the value of
the option held by it. Yield curve options also may be covered in such other
manner as may be in accordance with the requirements of the counterparty
with which the option is traded and applicable laws and regulations. Yield curve
options are traded OTC.
Currency
Transactions
A fund may
be authorized to engage in currency transactions with counterparties to hedge
the value of portfolio securities denominated in particular currencies
against fluctuations in relative value, to gain exposure to a currency without
purchasing securities denominated in that currency, to facilitate
the settlement of equity trades or to exchange one currency for another. If a
fund enters into a currency hedging transaction, the fund will comply with
the asset segregation requirements described below under “Use of Segregated and
Other Special Accounts.” Currency transactions may include:
• |
forward
currency contracts; |
• |
exchange-listed
currency futures contracts and options
thereon; |
• |
exchange-listed
and OTC options on currencies; |
• |
spot
transactions (i.e., transactions on a cash basis based on prevailing
market rates). |
A forward
currency contract involves a privately negotiated obligation to purchase or sell
(with delivery generally required) a specific currency at a future date
at a price set at the time of the contract. A currency swap is an agreement to
exchange cash flows based on the notional difference among two or more
currencies and operates similarly to an interest rate swap, which is described
under “Swap Agreements and Options on Swap Agreements.”
A fund may enter into currency transactions only with counterparties that are
deemed creditworthy by a subadvisor. Nevertheless, engaging in
currency transactions will expose a fund to counterparty risk.
A fund’s
dealings in forward currency contracts and other currency transactions such as
futures contracts, options, options on futures contracts and swaps may
be used for hedging and similar purposes, possibly including transaction
hedging, position hedging, cross hedging and proxy hedging. A fund also
may use foreign currency options and foreign currency forward contracts to
increase exposure to a foreign currency, to shift exposure to foreign
currency fluctuation from one country to another or to facilitate the settlement
of equity trades. A fund may
elect to hedge less than all of its foreign
portfolio positions as deemed appropriate by a subadvisor.
A
fund also may
engage in non-deliverable forward transactions to manage currency risk or to
gain exposure to a currency without purchasing securities
denominated in that currency. A non-deliverable forward is a transaction that
represents an agreement between a fund and a counterparty (usually a
commercial bank) to buy or sell a specified (notional) amount of a particular
currency at an agreed-upon foreign exchange rate on an agreed-upon future
date. Unlike other currency transactions, there is no physical delivery of the
currency on the settlement of a non-deliverable forward transaction.
Rather, the fund and the counterparty agree to net the settlement by making a
payment in U.S. dollars or another fully convertible currency
that represents any differential between the foreign exchange rate agreed upon
at the inception of the non-deliverable forward agreement and the
actual exchange rate on the agreed-upon future date. Thus, the actual gain or
loss of a given non-deliverable forward transaction is calculated by
multiplying the transaction’s notional amount by the difference between the
agreed-upon forward exchange rate and the actual exchange rate when the
transaction is completed.
Subject to
the requirements noted under “Risk of Additional Government Regulation of
Derivatives” and “Use of Segregated and Other Special Accounts,”
when a fund enters into a non-deliverable forward transaction, the fund will
segregate liquid assets in an amount not less than the value of the fund’s
net exposure to such non-deliverable forward transactions. If the additional
segregated assets decline in value or the amount of the fund’s commitment
increases because of changes in currency rates, additional cash or securities
will be segregated on a daily basis so that the value of the account
will equal the amount of the fund’s commitments under the non-deliverable
forward agreement.
Since a
fund generally may only close out a non-deliverable forward with the particular
counterparty, there is a risk that the counterparty will default on its
obligation to pay under the agreement. If the counterparty defaults, the fund
will have contractual remedies pursuant to the agreement related to the
transaction, but there is no assurance that contract counterparties will be able
to meet their obligations pursuant to such agreements or that, in the event
of a default, the fund will succeed in pursuing contractual remedies. The fund
thus assumes the risk that it may be delayed or prevented from obtaining
payments owed to it pursuant to non-deliverable forward
transactions.
In
addition, where the currency exchange rates that are the subject of a given
non-deliverable forward transaction do not move in the direction or to the
extent
anticipated, a fund could sustain losses on the non-deliverable forward
transaction. A fund’s investment in a particular non-deliverable forward
transaction
will be affected favorably or unfavorably by factors that affect the subject
currencies, including economic, political and legal developments that impact
the applicable countries, as well as exchange control regulations of the
applicable countries. These risks are heightened when a non-deliverable
forward transaction involves currencies of emerging market countries because
such currencies can be volatile and there is a greater risk that such
currencies will be devalued against the U.S. dollar or other
currencies.
Transaction
Hedging.
Transaction hedging involves entering into a currency transaction with respect
to specific assets or liabilities of a fund, which generally
will arise in connection with the purchase or sale of the portfolio securities
or the receipt of income from them.
Position
Hedging. Position
hedging involves entering into a currency transaction with respect to portfolio
securities positions denominated or generally
quoted in that currency.
Cross
Hedging. A fund may
be authorized to cross-hedge currencies by entering into transactions to
purchase or sell one or more currencies that are expected to
increase or decline in value relative to other currencies to which the fund has
or in which the fund expects to have exposure.
Proxy
Hedging. To reduce
the effect of currency fluctuations on the value of existing or anticipated
holdings of its securities, a fund also may be authorized
to engage in proxy hedging. Proxy hedging is often used when the currency to
which a fund’s holdings are exposed is generally difficult to hedge or
specifically difficult to hedge against the dollar. Proxy hedging entails
entering into a forward contract to sell a currency, the changes in the
value of
which are generally considered to be linked to a currency or currencies in which
some or all of a fund’s securities are or are expected to be denominated,
and to buy dollars. The amount of the contract would not exceed the market value
of the fund’s securities denominated in linked currencies.
Combined
Transactions
A fund may
be authorized to enter into multiple transactions, including multiple options
transactions, multiple futures transactions, multiple currency transactions
(including forward currency contracts), multiple interest rate transactions and
any combination of futures, options, currency and interest rate
transactions. A combined transaction usually will contain elements of risk that
are present in each of its component transactions. Although a fund normally
will enter into combined transactions to reduce risk or otherwise more
effectively achieve the desired portfolio management goal, it is possible
that the combination will instead increase the risks or hinder achievement of
the fund’s investment objective.
Swap
Agreements and Options on Swap Agreements
Among the
hedging and other strategic transactions into which a fund may be authorized to
enter are swap transactions, including, but not limited to, swap
agreements on interest rates, security or commodity indexes, specific securities
and commodities, currency exchange rates, and credit and event-linked
swaps. To the extent that a fund may invest in foreign currency-denominated
securities, it also may invest in currency exchange rate swap agreements.
A fund may
enter into swap transactions for any legal purpose consistent with its
investment objective and policies, such as to attempt to obtain or preserve a
particular return or spread at a lower cost than obtaining a return or spread
through purchases and/or sales of instruments in other markets, to
protect against currency fluctuations, as a duration management technique, to
protect against any increase in the price of securities the fund
anticipates purchasing at a later date, or to gain exposure to certain markets
in the most economical way possible.
OTC swap
agreements are two-party contracts entered into primarily by institutional
investors for periods ranging from a few weeks to one or more years. In a
standard “swap” transaction, two parties agree to exchange the returns (or
differentials in rates of return) earned or realized on particular predetermined
investments or instruments, which may be adjusted for an interest factor. The
gross returns to be exchanged or “swapped” between the parties are
generally calculated with respect to a “notional amount,” i.e., the return on or
increase in value of a particular dollar amount invested at a particular
interest rate, in a particular foreign currency, or in a “basket” of securities
or commodities representing a particular index. A “quanto” or “differential”
swap combines both an interest rate and a currency transaction. Other forms of
swap agreements include interest rate caps, under which, in
return for a premium, one party agrees to make payments to the other to the
extent that interest rates exceed a specified rate, or “cap”; interest
rate floors, under which, in return for a premium, one party agrees to make
payments to the other to the extent that interest rates fall below a
specified
rate, or “floor”; and interest rate collars, under which a party sells a cap and
purchases a floor or vice versa in an attempt to protect itself against
interest rate movements exceeding given minimum or maximum levels. Consistent
with a fund’s investment objectives and general investment policies, a
fund may be authorized to invest in commodity swap agreements. For example, an
investment in a commodity swap agreement may involve the
exchange of floating-rate interest payments for the total return on a commodity
index. In a total return commodity swap, a fund will receive the price
appreciation of a commodity index, a portion of the index, or a single commodity
in exchange for paying an agreed-upon fee. If the commodity swap is for
one period, a fund may pay a fixed fee, established at the outset of the swap.
However, if the term of the commodity swap is more than one period,
with interim swap payments, a fund may pay an adjustable or floating fee. With a
“floating” rate, the fee may be pegged to a base rate, such as LIBOR, and
is adjusted each period. Therefore, if interest rates increase over the term of
the swap contract, a fund may be required to pay a higher fee at each
swap reset date.
A fund may
be authorized to enter into options on swap agreements (“Swap Options”). A Swap
Option is a contract that gives a counterparty the right (but not
the obligation) in return for payment of a premium, to enter into a new swap
agreement or to shorten, extend, cancel or otherwise modify an existing
swap agreement, at some designated future time on specified terms. A fund also
may be authorized to write (sell) and purchase put and call Swap
Options.
Depending
on the terms of the particular agreement, a fund generally will incur a greater
degree of risk when it writes a Swap Option than it will incur when it
purchases a Swap Option. When a fund purchases a swap option, it risks losing
only the amount of the premium it has paid should it decide to let the
option expire unexercised. However, when the fund writes a Swap Option, upon
exercise of the option the fund will become obligated according to the
terms of the underlying agreement. Most other types of swap agreements entered
into by a fund would calculate the obligations of the parties to the
agreement on a “net basis.” Consequently, a fund’s current obligations (or
rights) under a swap agreement generally will be equal only to the net
amount to
be paid or received under the agreement based on the relative values of the
positions held by each party to the agreement (the “net amount”). A
fund’s current obligations under a swap agreement will be accrued daily (offset
against any amounts owed to the fund) and any accrued but unpaid
net amounts owed to a swap counterparty will be covered by the segregation or
“earmarking” of liquid assets, to avoid any potential leveraging
of a fund’s investments. Obligations under swap agreements so covered will not
be construed to be “senior securities” for purposes of a fund’s
investment restriction concerning senior securities.
Whether a
fund’s use of swap agreements or Swap Options will be successful in furthering
its investment objective will depend on a subadvisor’s ability to predict
correctly whether certain types of investments are likely to produce greater
returns than other investments. Because OTC swaps are two-party
contracts and because they may have terms of greater than seven days, they may
be considered to be illiquid. Moreover, a fund bears the risk of loss of the
amount expected to be received under a swap agreement in the event of the
default or bankruptcy of a swap agreement counterparty. A fund will
enter into swap agreements only with counterparties that meet certain standards
of creditworthiness. Certain restrictions imposed on a fund by the Code
may limit its ability to use swap agreements. Current regulatory initiatives,
described below, and potential future regulation could adversely
affect a fund’s ability to terminate existing swap agreements or to realize
amounts to be received under such agreements. A
fund will not
enter into
a swap agreement with any single party if the net amount owed to the fund under
existing contracts with that party would exceed 5% of the fund’s
total assets.
Swaps are
highly specialized instruments that require investment techniques, risk
analyses, and tax planning different from those associated with traditional
investments. The use of a swap requires an understanding not only of the
referenced asset, rate, or index but also of the swap itself, without
the benefit
of observing the performance of the swap under all possible market conditions.
Swap agreements may be subject to liquidity risk, which exists when
a particular swap is difficult to purchase or sell. If a swap transaction is
particularly large or if the relevant market is illiquid (as is the case
with many
OTC swaps), it may not be possible to initiate a transaction or liquidate a
position at an advantageous time or price, which may result in significant
losses. In addition, a swap transaction may be subject to a fund’s limitation on
investments in illiquid securities.
Like most
other investments, swap agreements are subject to the risk that the market value
of the instrument will change in a way detrimental to a fund’s
interest. A fund bears the risk that a subadvisor will not accurately forecast
future market trends or the values of assets, reference rates, indexes, or
other economic factors in establishing swap positions for it. If a subadvisor
attempts to use a swap as a hedge against, or as a substitute for, an
investment, the fund will be exposed to the risk that the swap will have or will
develop imperfect or no correlation with the investment. This could cause
substantial losses for the fund. While hedging strategies involving swap
instruments can reduce the risk of loss, they also can reduce the opportunity
for gain or even result in losses by offsetting favorable price movements in
other investments.
The swaps
market was largely unregulated prior to the enactment of federal legislation
known as the Dodd-Frank Wall Street Reform and Consumer Protection
Act (the “Dodd-Frank Act”). Among other things, the Dodd-Frank Act sets forth a
new regulatory framework for certain OTC derivatives, such as swaps,
in which the funds may be authorized to invest. The Dodd-Frank Act requires many
swap transactions to be executed on registered exchanges
or through swap execution facilities, cleared through a regulated clearinghouse,
and publicly reported. In addition, many market participants
are now regulated as swap dealers and are, or will be, subject to certain
minimum capital and margin requirements and business conduct standards.
The statutory requirements of the Dodd-Frank Act are being implemented primarily
through rules and regulations adopted by the SEC and/or the
CFTC. There is a prescribed phase-in period during which most of the mandated
rulemaking and regulations are being implemented, and temporary
exemptions from certain rules and regulations have been granted so that current
trading practices will not be unduly disrupted during the transition
period.
As of the
date of this SAI, central clearing is required only for certain market
participants trading certain instruments, although central clearing for
additional
instruments is expected to be implemented by the CFTC until the majority of the
swaps market is ultimately subject to central clearing. In addition,
as described below, uncleared OTC swaps may be subject to regulatory collateral
requirements that could adversely affect a fund’s ability to enter into
swaps in the OTC market. These developments could cause a fund to terminate new
or existing swap agreements, realize amounts to be received
under such instruments at an inopportune time, or increase the costs associated
with trading derivatives. Until the mandated rulemaking and regulations
are implemented completely, it will not be possible to determine the complete
impact of the Dodd-Frank Act and related regulations on the funds. Swap
dealers, major market participants, and swap counterparties may also experience
other new and/or additional regulations, requirements, compliance
burdens, and associated costs. The Dodd-Frank Act and rules promulgated
thereunder may exert a negative effect on a fund’s ability to meet its
investment objective. The swap market could be disrupted or limited as a result
of the legislation, and the new requirements may increase the cost of a
fund’s investments and of doing business, which could adversely affect the
fund’s ability to buy or sell OTC derivatives. The prudential regulators
issued final rules that will require banks subject to their supervision to
exchange variation and initial margin in respect of their obligations
arising
under uncleared swap agreements. The CFTC adopted similar rules that apply to
CFTC-registered swap dealers that are not banks. Such rules generally
require the funds to segregate additional assets in order to meet the new
variation and initial margin requirements when they enter into uncleared
swap agreements. The variation margin requirements are now effective and the
initial margin requirements are being phased-in through 2022 based
on average daily aggregate notional amount of covered swaps between swap
dealers, and swap entities.
In
addition, regulations adopted by the prudential regulators require certain banks
to include in a range of financial contracts, including derivative and
short-term
funding transactions terms delaying or restricting a counterparty’s default,
termination and other rights in the event that the bank and/or its
affiliates become subject to certain types of resolution or insolvency
proceedings. The regulations could limit a fund’s ability to exercise a range of
cross-default
rights if its counterparty, or an affiliate of the counterparty, is subject to
bankruptcy or similar proceedings. Such regulations could further
negatively impact the funds’ use of derivatives.
Additional
information about certain swap agreements that the funds may utilize is provided
below.
Credit
default swap agreements (“CDS”). CDS may
have as reference obligations one or more securities that are not currently held
by a fund. The protection
“buyer” in a CDS is generally obligated to pay the protection “seller” an
upfront or a periodic stream of payments over the term of the CDS provided
that no credit event, such as a default, on a reference obligation has occurred.
If a credit event occurs, the seller generally must pay the buyer the
“par value” (full notional value) of the CDS in exchange for an equal face
amount of deliverable obligations of the reference entity described in the CDS,
or the seller may be required to deliver the related net cash amount, if the CDS
is cash settled. A fund may be either the buyer or seller in the
transaction. If a fund is a buyer and no credit event occurs, the fund may
recover nothing if the CDS is held through its termination date. However,
if a credit
event occurs, the buyer generally may elect to receive the full notional value
of the CDS in exchange for an equal face amount of deliverable obligations
of the reference entity whose value may have significantly decreased. As a
seller, a fund generally receives an upfront payment or a fixed rate of
income throughout the term of the CDS, provided that there is no credit event.
As the seller, a fund would effectively add leverage to the fund because, in
addition to its total net assets, the fund would be subject to investment
exposure on the notional amount of the CDS. If a fund enters into a CDS, the
fund may be required to report the CDS as a “listed transaction” for tax shelter
reporting purposes on the fund’s federal income tax return. If the IRS
were to determine that the CDS is a tax shelter, a fund could be subject to
penalties under the Code.
Credit
default swap indices are indices that reflect the performance of a basket of
credit default swaps and are subject to the same risks as CDS. The fund’s
return from investment in a credit default swap index may not match the return
of the referenced index. Further, investment in a credit default
swap index
could result in losses if the referenced index does not perform as expected.
Unexpected changes in the composition of the index may also affect
performance of the credit default swap index. If a referenced index has a
dramatic intraday move that causes a material decline in the fund’s net
assets, the
terms of the fund’s credit default swap index may permit the counterparty to
immediately close out the transaction. In that event, the fund may be
unable to enter into another credit default swap index or otherwise achieve
desired exposure, even if the referenced index reverses all or a portion of
its intraday move.
A fund also
may be authorized to enter into credit default swaps on index tranches. CDS on
index tranches give the fund, as a seller of credit protection,
the opportunity to take on exposures to specific segments of the CDS index
default loss distribution. Each tranche has a different sensitivity
to credit risk correlations among entities in the index. One of the main
benefits of index tranches is higher liquidity. This has been achieved
mainly
through standardization, yet it is also due to the liquidity in the single-name
CDS and CDS index markets. In contrast, possibly owing to the limited
liquidity in the corporate bond market, securities referencing corporate bond
indexes have not been traded actively.
CDS involve
greater risks than if a fund had invested in the reference obligation directly
since, in addition to general market risks, CDS are subject to illiquidity
risk, counterparty risk and credit risk. A fund will enter into CDS only with
counterparties that meet certain standards of creditworthiness. A buyer
generally also will lose its investment and recover nothing should no credit
event occur and the CDS is held to its termination date. If a credit
event were
to occur, the value of any deliverable obligation received by the seller,
coupled with the upfront or periodic payments previously received, may be less
than the full notional value it pays to the buyer, resulting in a loss of value
to the seller. A fund’s obligations under a CDS will be accrued daily
(offset against any amounts owing to the fund). In connection with CDS in which
a fund is the buyer, the fund will segregate or “earmark” cash or liquid
assets, or enter into certain offsetting positions, with a value at least equal
to the fund’s exposure (any accrued but unpaid net amounts owed by the fund to
any counterparty), on a mark-to-market basis. In connection with CDS in which a
fund is the seller, the fund will segregate or “earmark” cash or
liquid assets, or enter into offsetting positions, with a value at least equal
to the full notional amount of the CDS. Such segregation or “earmarking”
will ensure that the fund has assets available to satisfy its obligations with
respect to the transaction and will limit any potential leveraging
of the fund’s investments. Such segregation or “earmarking” will not limit the
fund’s exposure to loss.
Dividend
swap agreements. A
dividend swap agreement is a financial instrument where two parties contract to
exchange a set of future cash flows at set dates
in the future. One party agrees to pay the other the future dividend flow on a
stock or basket of stocks in an index, in return for which the other party
gives the first call options. Dividend swaps generally are traded OTC rather
than on an exchange.
Inflation
swap agreements. An
inflation swap agreement is a contract in which one party agrees to pay the
cumulative percentage increase in a price index
(e.g., the CPI with respect to CPI swaps) over the term of the swap (with some
lag on the inflation index), and the other pays a compounded fixed rate.
Inflation swap agreements may be used to protect a fund’s NAV against an
unexpected change in the rate of inflation measured by an inflation index since
the value of these agreements is expected to increase if unexpected inflation
increases.
Interest
rate swap agreements. An
interest rate swap agreement involves the exchange of cash flows based on
interest rate specifications and a specified
principal amount, often a fixed payment for a floating payment that is linked to
an interest rate. An interest rate lock specifies a future interest
rate to be paid. In an interest rate cap, one party receives payments at the end
of each period in which a specified interest rate on a specified principal
amount exceeds an agreed-upon rate; conversely, in an interest rate floor, one
party may receive payments if a specified interest rate on a specified
principal amount falls below an agreed-upon rate. Caps and floors have an effect
similar to buying or writing options. Interest rate collars involve
selling a cap and purchasing a floor, or vice versa, to protect a fund against
interest rate movements exceeding given minimum or maximum levels.
Total
return swap agreements. A total
return swap agreement is a contract whereby one party agrees to make a series of
payments to another party based on
the change in the market value of the assets underlying such contract (which can
include a security, commodity, index or baskets thereof) during the
specified period. In exchange, the other party to the contract agrees to make a
series of payments calculated by reference to an interest rate and/or
some other agreed-upon amount (including the change in market value of other
underlying assets). A fund may use total return swaps to gain
exposure to an asset without owning it or taking physical custody of it. For
example, by investing in total return commodity swaps, a fund will receive the
price appreciation of a commodity, commodity index or portion thereof in
exchange for payment of an agreed-upon fee.
Variance
swap agreements. Variance
swap agreements involve an agreement by two parties to exchange cash flows based
on the measured variance (or square
of volatility) of a specified underlying asset. One party agrees to exchange a
“fixed rate” or strike price payment for the “floating rate” or realized
price variance on the underlying asset with respect to the notional amount. At
inception, the strike price chosen is generally fixed at a level such that
the fair value of the swap is zero. As a result, no money changes hands at the
initiation of the contract. At the expiration date, the amount paid by one
party to the other is the difference between the realized price variance of the
underlying asset and the strike price multiplied by the notional
amount. A receiver of the realized price variance would receive a payment when
the realized price variance of the underlying asset is greater than the
strike price and would make a payment when that variance is less than the strike
price. A payer of the realized price variance would make a payment
when the realized price variance of the underlying asset is greater than the
strike price and would receive a payment when that variance is less than
the strike price. This type of agreement is essentially a forward contract on
the future realized price variance of the underlying asset.
Eurodollar
Instruments
A fund may
be authorized to invest in Eurodollar instruments which typically are
dollar-denominated futures contracts or options on those contracts that are
linked to LIBOR. In addition, foreign currency-denominated instruments are
available from time to time. Eurodollar futures contracts enable purchasers
to obtain a fixed rate for the lending of funds and sellers to obtain a fixed
rate for borrowings. A fund might use Eurodollar futures contracts
and options thereon to hedge against changes in LIBOR, to which many interest
rate swaps and fixed income instruments are linked.
Warrants
and Rights
Warrants
and rights generally give the holder the right to receive, upon exercise and
prior to the expiration date, a security of the issuer at a stated price.
Funds typically use warrants and rights in a manner similar to their use of
options on securities, as described in “General Characteristics of Options”
above and elsewhere in this SAI. Risks associated with the use of warrants and
rights are generally similar to risks associated with the use of options.
Unlike most options, however, warrants and rights are issued in specific
amounts, and warrants generally have longer terms than options. Warrants
and rights are not likely to be as liquid as exchange-traded options backed by a
recognized clearing agency. In addition, the terms of warrants or
rights may limit a fund’s ability to exercise the warrants or rights at such
time, or in such quantities, as the fund would otherwise wish.
Non-Standard
Warrants and Participatory Notes. From time
to time, a fund may use non-standard warrants, including low exercise price
warrants or low
exercise price options (“LEPOs”), and participatory notes (“P-Notes”) to gain
exposure to issuers in certain countries. LEPOs are different from standard
warrants in that they do not give their holders the right to receive a security
of the issuer upon exercise. Rather, LEPOs pay the holder the difference
in price of the underlying security between the date the LEPO was purchased and
the date it is sold. P-Notes are a type of equity-linked derivative
that generally are traded OTC and constitute general unsecured contractual
obligations of the banks, broker dealers or other financial institutions
that issue them. Generally, banks and broker dealers associated with
non-U.S.-based brokerage firms buy securities listed on certain foreign
exchanges and then issue P-Notes that are designed to replicate the performance
of certain issuers and markets. The performance results of P-Notes
will not replicate exactly the performance of the issuers or markets that the
notes seek to replicate due to transaction costs and other expenses.
The return on a P-Note that is linked to a particular underlying security
generally is increased to the extent of any dividends paid in connection
with the underlying security. However, the holder of a P-Note typically does not
receive voting or other rights as it would if it directly owned the
underlying security, and P-Notes present similar risks to investing directly in
the underlying security. Additionally, LEPOs and P-Notes entail the same risks
as other over-the-counter derivatives. These include the risk that the
counterparty or issuer of the LEPO or P-Note may not be able to fulfill
its
obligations, that the holder and counterparty or issuer may disagree as to the
meaning or application of contractual terms, or that the instrument may not
perform as expected. See “Principal risks—Credit and Counterparty risk” in the
Prospectus, as applicable, and “Risk of Hedging and Other Strategic
Transactions” below. Additionally, while LEPOs or P-Notes may be listed on an
exchange, there is no guarantee that a liquid market will exist or that the
counterparty or issuer of a LEPO or P-Note will be willing to repurchase such
instrument when a fund wishes to sell it.
Risk
of Hedging and Other Strategic Transactions
Hedging and
other strategic transactions are subject to special risks,
including:
• |
possible
default by the counterparty to the
transaction; |
• |
markets
for the securities used in these transactions could be illiquid;
and |
• |
to
the extent a subadvisor’s assessment of market movements is incorrect, the
risk that the use of the hedging and other strategic transactions
could
result in losses to the fund. |
Losses
resulting from the use of hedging and other strategic transactions will reduce a
fund’s NAV, and possibly income. Losses can be greater than if hedging and
other strategic transactions had not been used.
Options
and Futures Transactions. Options
transactions are subject to the following additional risks:
• |
option
transactions could force the sale or purchase of portfolio securities at
inopportune times or for prices higher than current market values (in
the
case of put options) or lower than current market values (in the case of
call options), or could cause a fund to hold a security it might otherwise
sell
(in the case of a call option); |
• |
calls
written on securities that a fund does not own are riskier than calls
written on securities owned by the fund because there is no underlying
security
held by the fund that can act as a partial hedge, and there also is a
risk, especially with less liquid securities, that the securities may not
be available
for purchase; and |
• |
options
markets could become illiquid in some circumstances and certain OTC
options could have no markets. As a result, in certain markets, a
fund
might not be able to close out a transaction without incurring substantial
losses. |
Futures
transactions are subject to the following additional risks:
• |
the
degree of correlation between price movements of futures contracts and
price movements in the related securities position of a fund could
create
the possibility that losses on the hedging instrument are greater than
gains in the value of the fund’s
position. |
• |
futures
markets could become illiquid. As a result, in certain markets, a fund
might not be able to close out a transaction without incurring
substantial
losses. |
Although a
fund’s use of futures and options for hedging should tend to minimize the risk
of loss due to a decline in the value of the hedged position, at the same
time, it will tend to limit the potential gain that might result from an
increase in value.
Currency
Hedging. In
addition to the general risks of hedging and other strategic transactions
described above, currency hedging transactions have the
following risks:
• |
currency
hedging can result in losses to a fund if the currency being hedged
fluctuates in value to a degree or direction that is not
anticipated; |
• |
proxy
hedging involves determining the correlation between various currencies.
If a subadvisor’s determination of this correlation is incorrect, a
fund’s
losses could be greater than if the proxy hedging were not used;
and |
• |
foreign
government exchange controls and restrictions on repatriation of currency
can negatively affect currency transactions. These forms of
|
|
governmental
actions can result in losses to a fund if it is unable to deliver or
receive currency or monies to settle obligations. Such governmental
actions
also could cause hedges it has entered into to be rendered useless,
resulting in full currency exposure as well as incurring transaction
costs. |
Currency
Futures Contracts and Options on Currency Futures Contracts. Currency
futures contracts are subject to the same risks that apply to the use of
futures contracts generally. In addition, settlement of a currency futures
contract for the purchase of most currencies must occur at a bank based in
the issuing nation. Trading options on currency futures contracts is relatively
new, and the ability to establish and close out positions on these options is
subject to the maintenance of a liquid market that may not always be
available.
Risk
Associated with Specific Types of Derivative Debt Securities. Different
types of derivative debt securities are subject to different combinations
of prepayment, extension and/or interest rate risk. Conventional mortgage
passthrough securities and sequential pay CMOs are subject to all of
these risks, but typically are not leveraged. Thus, the magnitude of exposure
may be less than for more leveraged mortgage-backed securities.
The risk of
early prepayments is the primary risk associated with IOs, super floaters, other
leveraged floating rate instruments and mortgage-backed securities
purchased at a premium to their par value. In some instances, early prepayments
may result in a complete loss of investment in certain of these
securities. The primary risks associated with certain other derivative debt
securities are the potential extension of average life and/or depreciation
due to rising interest rates.
Derivative
debt securities include floating rate securities based on the COFI floaters,
other “lagging rate” floating rate securities, capped floaters, mortgage-backed
securities purchased at a discount, leveraged inverse floating rate securities,
POs, certain residual or support tranches of CMOs and index
amortizing notes. Index amortizing notes are not mortgage-backed securities, but
are subject to extension risk resulting from the issuer’s failure to exercise
its option to call or redeem the notes before their stated maturity date.
Leveraged inverse IOs combine several elements of the mortgage-backed
securities described above and present an especially intense combination of
prepayment, extension and interest rate risks.
PAC and TAC
CMO bonds involve less exposure to prepayment, extension and interest rate risk
than other mortgage-backed securities, provided that prepayment
rates remain within expected prepayment ranges or “collars.” To the extent that
prepayment rates remain within these prepayment ranges, the
residual or support tranches of PAC and TAC CMOs assume the extra prepayment,
extension and interest rate risk associated with the underlying
mortgage assets.
Other types
of floating rate derivative debt securities present more complex types of
interest rate risks. For example, range floaters are subject to the risk that
the coupon will be reduced to below market rates if a designated interest rate
floats outside of a specified interest rate band or collar. Dual index or
yield curve floaters are subject to depreciation in the event of an unfavorable
change in the spread between two designated interest rates. X-reset
floaters have a coupon that remains fixed for more than one accrual period.
Thus, the type of risk involved in these securities depends on the terms of
each individual X-reset floater.
Risk
of Hedging and Other Strategic Transactions Outside the United
States
When
conducted outside the United States, hedging and other strategic transactions
will not only be subject to the risks described above, but also could be
adversely affected by:
• |
foreign
governmental actions affecting foreign securities, currencies or other
instruments; |
• |
less
stringent regulation of these transactions in many countries as compared
to the United States; |
• |
the
lack of clearing mechanisms and related guarantees in some countries for
these transactions; |
• |
more
limited availability of data on which to make trading decisions than in
the United States; |
• |
delays
in a fund’s ability to act upon economic events occurring in foreign
markets during non-business hours in the United
States; |
• |
the
imposition of different exercise and settlement terms and procedures and
margin requirements than in the United States;
and |
• |
lower
trading volume and liquidity. |
Use of
Segregated and Other Special Accounts
As noted
under “Risk of Additional Government Regulation of Derivatives,” on October 28,
2020, the SEC announced it would rescind current derivatives
guidance. However, unless a fund elects to comply early with the Derivatives
Rule, the fund may continue to engage in certain asset segregation
practices in accordance with current guidance until rescinded, as described in
this subsection. Use of extensive hedging and other strategic
transactions by a fund will require, among other things, that the fund post
collateral with counterparties or clearinghouses, and/or segregate cash or
other liquid assets with its custodian, or a designated subcustodian, to the
extent that the fund’s obligations are not otherwise “covered” through
ownership of the underlying security, financial instrument or
currency.
In general,
either the full amount of any obligation by a fund to pay or deliver securities
or assets under a transaction or series of transactions must be covered at
all times by: (a) holding the securities, instruments or currency required to
meet the fund’s obligations under such transactions or series of transactions;
or (b) subject to any regulatory restrictions, segregating an amount of cash or
other liquid assets at least equal to the current amount of the
obligation. The segregated assets cannot be sold or transferred unless
equivalent assets are substituted in their place or it is no longer necessary
to
segregate them. Some examples of cover requirements are set forth
below.
Call
Options. A call
option on securities written by a fund will require the fund to hold the
securities subject to the call (or securities convertible into the needed
securities without additional consideration) or to segregate cash or other
liquid assets sufficient to purchase and deliver the securities if the call is
exercised. A call option sold by a fund on an index will require the fund to own
portfolio securities that correlate with the index or to segregate
cash or other liquid assets equal to its obligations under the
option.
Put
Options. A put
option on securities written by a fund will require the fund to segregate cash
or other liquid assets equal to the exercise price.
OTC
Options. OTC
options entered into by a fund, including those on securities, currency,
financial instruments or indices, and OTC-issued and exchange-listed
index options generally will provide for cash settlement, although a fund will
not be required to do so. As a result, when a fund sells these
instruments it will segregate an amount of cash or other liquid assets equal to
its obligations under the options. OTC-issued and exchange-listed options
sold by a fund other than those described above generally settle with physical
delivery, and the fund will segregate an amount of cash or liquid high grade
debt securities equal to the full value of the option. OTC options settling with
physical delivery or with an election of either physical delivery or cash
settlement will be treated the same as other options settling with physical
delivery.
Currency
Contracts. Except
when a fund enters into a forward contract in connection with the purchase or
sale of a security denominated in a foreign
currency or for other non-speculative purposes, which requires no segregation, a
currency contract that obligates the fund to buy or sell a foreign
currency generally will require the fund to hold an amount of that currency or
liquid securities denominated in that currency equal to a fund’s obligations
or to segregate cash or other liquid assets equal to the amount of the fund’s
obligations.
Futures
Contracts and Options on Futures Contracts. In the
case of a futures contract or an option on a futures contract, a fund must
deposit initial
margin and, in some instances, daily variation margin, in addition to
segregating assets sufficient to meet its obligations under the contract.
These
assets may consist of cash, cash equivalents, liquid debt, equity securities or
other acceptable assets.
Swaps. A fund
will calculate the net amount, if any, of its obligations relating to swaps on a
daily basis and will segregate an amount of cash or other liquid
assets having an aggregate value at least equal to this net amount.
Caps,
Floors and Collars. Caps,
floors and collars require segregation of assets with a value equal to a fund’s
net obligation, if any.
Hedging and
other strategic transactions may be covered by means other than those described
above when consistent with applicable regulatory policies. A
fund also may enter into offsetting transactions so that its combined position,
coupled with any segregated assets, equals its net outstanding
obligation. A fund could purchase a put option, for example, if the exercise
price of that option is the same or higher than the exercise price of a
put option sold by the fund. In addition, if it holds a futures contracts or
forward contract, a fund could, instead of segregating assets, purchase a
put option on the same futures contract or forward contract with an exercise
price as high as or higher than the price of the contract held. Other
hedging and strategic transactions also may be offset in combinations. If the
offsetting transaction terminates on or after the time the primary transaction
terminates, no segregation is required, but if it terminates prior to that time,
assets equal to any remaining obligation would need to be segregated.
Risk
of Additional Government Regulation of Derivatives
It is
possible that additional government regulation of various types of derivative
instruments, including futures, options on futures and swap agreements,
may limit or prevent a fund from using such instruments as part of its
investment strategy, which could negatively impact the fund. While many
provisions of the Dodd-Frank Act have yet to either be fully implemented or are
subject to phase-in periods, any regulatory or legislative activity may not
necessarily have a direct, immediate effect upon a fund, it is possible that,
upon implementation of these measures or any future measures, they could
potentially limit or completely restrict the ability of a fund to use these
instruments as a part of its investment strategy, increase the costs of
using these
instruments or make them less effective. New position limits imposed on a fund
or its counterparty may also impact the fund’s ability to invest in
futures, options, and swaps in a manner that efficiently meets its investment
objective.
In
addition, new Rule 18f-4 (the “Derivatives Rule”), adopted by the SEC on October
28, 2020, replaces current asset segregation requirements with a new
framework for the use of derivatives by registered funds. For funds using a
significant amount of derivatives, the Derivatives Rule mandates a fund
adopt
and/or implement: (i) value at risk limitations in lieu of asset segregation
requirements; (ii) a written derivatives risk management program; (iii)
new Board
oversight responsibilities; and (iv) new reporting and recordkeeping
requirements. The Derivatives Rule provides an exception for funds with
derivative
exposure not exceeding 10% of its net assets, excluding certain currency and
interest rate hedging transactions. In addition, the Derivatives Rule
provides special treatment for reverse repurchase agreements and similar
financing transactions and unfunded commitment agreements. Funds will be
required to comply with the Derivatives Rule starting on August 19,
2022.
Other
Limitations
A fund will
not maintain open short positions in futures contracts, call options written on
futures contracts, and call options written on securities indices if,
in the aggregate, the current market value of the open positions exceeds the
current market value of that portion of its securities being hedged by
those futures and options, plus or minus the unrealized gain or loss on those
open positions. The gain or loss on these open positions will be adjusted
for the historical volatility relationship between that portion of the fund and
the contracts (e.g., the Beta volatility factor). In the alternative,
and subject
to the requirements noted under “Risk of Additional Government Regulation of
Derivatives” and “Use of Segregated and Other Special Accounts,”
a fund could maintain sufficient liquid assets in a segregated account equal at
all times to the current market value of the open short position in
futures contracts, call options written on futures contracts and call options
written on securities indices, subject to any other applicable investment
restrictions.
For
purposes of this limitation, to the extent that a fund has written call options
on specific securities in that portion of its portfolio, the value of those
securities
will be deducted from the current market value of that portion of the securities
portfolio. If this limitation should be exceeded at any time, the fund
will take prompt action to close out the appropriate number of open short
positions to bring its open futures and options positions within this
limitation.
INVESTMENT
RESTRICTIONS
Disciplined
Value Fund, Disciplined Value Mid Cap Fund, Global Shareholder Yield Fund,
International Growth Fund, and U.S. Growth Fund
Fundamental Investment
Restrictions. The
following investment restrictions will not be changed with respect to any fund
without the approval of a majority of
the fund’s outstanding voting securities which, as used in the Prospectus and
the SAI, means the approval by the lesser of: (1) the holders of 67% or
more of such fund’s shares represented at a meeting if more than 50% of such
fund’s outstanding shares are present in person or by proxy at that
meeting; or (2) more than 50% of such fund’s outstanding shares. Unless
otherwise noted, each investment restriction applies to each fund.
(1) The
fund may not borrow money except under the following circumstances: (i) the fund
may borrow money from banks so long as after such a transaction,
the total assets (including the amount borrowed) less liabilities other than
debt obligations, represent at least 300% of outstanding debt obligations;
(ii) the fund may also borrow amounts equal to an additional 5% of its total
assets without regard to the foregoing limitation for temporary purposes,
such as for the clearance and settlement of portfolio transactions and to meet
shareholder redemption requests; and (iii) the fund may enter into
transactions that are technically borrowings under the 1940 Act, because they
involve the sale of a security coupled with an agreement to repurchase
that security (e.g., reverse repurchase agreements, dollar rolls, and other
similar investment techniques) without regard to the asset coverage
restriction described in (i) above, so long as and to the extent that the fund’s
custodian earmarks and maintains cash and/or high grade debt securities
equal in value to its obligations in respect of these transactions.
Under
current pronouncements of the staff of the SEC, the above types of transactions
are not treated as involving senior securities so long as and to the extent
that the fund’s custodian earmarks and maintains liquid assets, such as cash,
U.S. government securities or other appropriate assets equal in value to
its obligations in respect of these transactions.
(2) The
fund may not engage in the business of underwriting securities issued by others,
except to the extent that a fund may be deemed to be an underwriter
in connection with the disposition of portfolio securities.
(3) The
fund may not purchase or sell real estate, which term does not include
securities of companies which deal in real estate or mortgages or investments
secured by real estate or interests therein, except that the fund reserves
freedom of action to hold and to sell real estate acquired as a result of
the fund’s ownership of securities.
(4) The
fund may not make loans except as permitted under the 1940 Act, as amended, and
as interpreted or modified by regulatory authority having jurisdiction,
from time to time.
(5) The
fund may not concentrate its investments in a particular industry, as that term
is used in the 1940 Act, as amended, and as interpreted or modified by
regulatory authority having jurisdiction, from time to time.
(6) The
fund may not purchase or sell commodities or commodity contracts, except that
the fund may purchase and sell futures contracts on financial instruments
and indices and options on such futures contracts and the fund may purchase and
sell futures contracts on foreign currencies and options on such
futures contracts. The fund may also without limitation purchase and sell
futures contracts, options on futures contracts, and options linked to
commodities
of all types, including physical commodities, and may enter into swap contracts
and any other commodity-linked derivative instruments including
those linked to physical commodities. Additionally, the fund may indirectly
invest in commodities, including physical commodities, by investing
in other investment companies and/or other investment vehicles that invest
entirely or substantially in commodities and/or commodity-linked
investments.
(7) The
fund may not issue senior securities, except as permitted under the 1940 Act, as
amended, and as interpreted or modified by regulatory authority
having jurisdiction, from time to time.
(8) Each of
Disciplined Value Fund, Disciplined Value Mid Cap Fund, Global Shareholder Yield
Fund, and International Growth Fund has elected to be treated as
a diversified investment company, as that term is used in the 1940 Act, as
amended, and as interpreted or modified by regulatory authority having
jurisdiction, from time to time.
Non-Fundamental Investment
Restrictions. The
following restrictions are designated as non-fundamental and may be changed by
the Board without
shareholder approval.
JHF III
will not take any of the following actions with respect to any fund or as
indicated:
|
(1)
Buy or sell oil, gas, or other mineral leases, rights or royalty
contracts. |
|
(2)
Invest for the purpose of exercising control over or management of any
company. |
|
(3)
Invest more than 15% of net assets in illiquid securities. For this
purpose, “illiquid securities” may include certain restricted securities
under the federal
securities laws (including illiquid securities eligible for resale under
Rules 144 or 144A), repurchase agreements, and securities that are not
readily
marketable. To the extent the Trustees determine that restricted
securities eligible for resale under Rules 144 or 144A (safe harbor rules
for resales
of securities acquired under Section 4(2) private placements) under the
1933 Act, repurchase agreements and securities that are not readily
marketable, are in fact liquid, they will not be included in the 15% limit
on investment in illiquid securities. |
|
Repurchase
agreements maturing in more than seven days are considered illiquid,
unless an agreement can be terminated after a notice period of
seven
days or less. |
|
For
so long as the SEC maintains the position that most swap contracts, caps,
floors, and collars are illiquid, each fund will continue to designate
these
instruments as illiquid for purposes of its 15% illiquid limitation unless
the instrument includes a termination clause or has been determined
to be
liquid based on a case-by-case analysis pursuant to procedures approved by
the Board. |
|
(4)
Pledge, hypothecate, mortgage, or otherwise encumber its assets in excess
of 33 1/3% of the fund’s total assets (taken at cost). (For the
purposes
of this restriction, collateral arrangements with respect to swap
agreements, the writing of options, stock index, interest rate, currency
or other
futures, options on futures contracts and collateral arrangements with
respect to initial and variation margin are not deemed to be a pledge or
other
encumbrance of assets. The deposit of securities or cash or cash
equivalents in escrow in connection with the writing of covered call or
put options,
respectively, is not deemed to be a pledge or
encumbrance.) |
Diversified
Real Assets Fund,
Fundamental Equity Income Fund, Mid Cap Growth Fund, and
Money Market Fund
There are
two classes of investment restrictions to which a fund is subject in
implementing its investment policies: (a) fundamental; and (b) non-fundamental.
Fundamental restrictions may be changed only by a vote of the lesser of: (i) 67%
or more of the shares represented at a meeting at which more than
50% of the outstanding shares are represented; or (ii) more than 50% of the
outstanding shares. Non-fundamental restrictions are subject to change
by the Board without shareholder approval.
When
submitting an investment restriction change to the holders of a fund’s
outstanding voting securities, the matter shall be deemed to have been
effectively
acted upon with respect to the fund if a majority of the outstanding voting
securities of the fund votes for the approval of the matter, notwithstanding:
(1) that the matter has not been approved by the holders of a majority of the
outstanding voting securities of any other series of the Trust
affected by the matter; and (2) that the matter has not been approved by the
vote of a majority of the outstanding voting securities of the Trust as
a
whole.
Diversified
Real Assets Fund
Fundamental Investment
Restrictions
(1)
Concentration. The fund
will not concentrate its investments in a particular industry or group of
industries, as used in the 1940 Act, as amended, and as
interpreted or modified by regulatory authority having jurisdiction, from time
to time, except that it will be concentrated in the securities and other
obligations of Real Asset Companies (as defined in the prospectus).
(2)
Borrowing. The fund
will not borrow money, except as permitted under the 1940 Act, as amended, and
as interpreted or modified by regulatory authority
having jurisdiction, from time to time.
(3)
Underwriting. The fund
will not engage in the business of underwriting securities issued by others,
except to the extent that the fund may be deemed to
be an underwriter in connection with the disposition of portfolio
securities.
(4)
Real
Estate. The fund
will not purchase or sell real estate, which term does not include securities of
companies which deal in real estate or mortgages
or investments secured by real estate or interests therein, except that the fund
reserves freedom of action to hold and to sell real estate acquired as
a result of the fund’s ownership of securities.
(5)
Commodities. The fund
will not purchase or sell commodities, except as permitted under the 1940 Act,
as amended, and as interpreted or modified by
regulatory authority having jurisdiction, from time to time.
(6)
Loans. The fund
will not make loans except as permitted under the 1940 Act, as amended, and as
interpreted or modified by regulatory authority having
jurisdiction, from time to time.
(7)
Senior
Securities. The fund
will not issue senior securities, except as permitted under the 1940 Act, as
amended, and as interpreted or modified by
regulatory authority having jurisdiction, from time to time.
For
purposes of fundamental restriction No. 7, purchasing securities on a
when-issued, forward commitment or delayed delivery basis and engaging in
hedging and
other strategic transactions will not be deemed to constitute the issuance of a
senior security.
(8)
Diversification. The fund
has elected to be treated as a diversified investment company, as that term is
used in the 1940 Act, as amended, and as interpreted
or modified by regulatory authority having jurisdiction, from time to
time.
Non-Fundamental Investment
Restrictions
The fund
will not:
|
(9)
Knowingly invest more than 15% of the value of its net assets in
securities or other investments, including repurchase agreements maturing
in more
than seven days but excluding master demand notes, which are not readily
marketable. |
|
(10)
Make short sales of securities or maintain a short position, if, when
added together, more than 25% of the value of the fund’s net assets would
be:
(i) deposited as collateral for the obligation to replace securities
borrowed to effect short sales; and (ii) allocated to segregated accounts
in connection
with short sales, except that it may obtain such short-term credits as may
be required to clear transactions. For purposes of this restriction,
collateral arrangements with respect to hedging and other strategic
transactions will not be deemed to involve the use of margin. Short
sales
“against-the-box” are not subject to this
limitation. |
|
(11)
Pledge, hypothecate, mortgage or transfer (except as provided in
restriction (7)) as security for indebtedness any securities held by the
fund, except
in an amount of not more than 10% of the value of the fund’s total assets
and then only to secure borrowings permitted by restrictions (2)
and
(9). For purposes of this restriction, collateral arrangements with
respect to hedging and other strategic transactions will not be deemed to
involve
a pledge of assets. |
|
For
purposes of restriction (11), “other strategic transactions” can include
short sales and derivative transactions intended for non-hedging
purposes. |
|
For
purposes of Diversified Real Assets Fund’s fundamental investment
restriction on concentration, the fund considers investment in the
securities and
other obligations of Real Asset Companies to be investment in a related
group of industries. |
Fundamental
Equity Income Fund
Fundamental Investment
Restrictions
|
(1)
Concentration. The fund may not concentrate its investments in a
particular industry, as that term is used in the 1940 Act, as amended, and
as interpreted
or modified by regulatory authority having jurisdiction, from time to
time. |
|
(2)
Diversification. The fund has elected to be treated as a diversified
investment company, as that term is used in the 1940 Act, as amended, and
as
interpreted or modified by regulatory authority having jurisdiction, from
time to time. |
|
(3)
Borrowing. The fund may not borrow money, except as permitted under the
1940 Act, as amended, and as interpreted or modified by regulatory
authority
having jurisdiction, from time to time. |
|
(4)
Underwriting. The fund may not engage in the business of underwriting
securities issued by others, except to the extent that the fund may be
deemed
to be an underwriter in connection with the disposition of portfolio
securities. |
|
(5)
Real Estate. The fund may not purchase or sell real estate, which term
does not include securities of companies which deal in real estate or
mortgages
or investments secured by real estate or interests therein, except that
each fund reserves freedom of action to hold and to sell real estate
acquired as a result of the fund’s ownership of
securities. |
|
(6)
Commodities. The fund may not purchase or sell commodities, except as
permitted under the 1940 Act, as amended, and as interpreted or
modified
by regulatory authority having jurisdiction, from time to
time. |
|
(7)
Loans. A fund may not make loans except as permitted under the 1940 Act,
as amended, and as interpreted or modified by regulatory authority
having
jurisdiction, from time to time. |
|
(8)
Senior Securities. A fund may not issue senior securities, except as
permitted under the 1940 Act, as amended, and as interpreted or modified
by
regulatory authority having jurisdiction, from time to
time. |
|
For
purposes of Fundamental Restriction No. 8, purchasing securities on a
when-issued, forward commitment or delayed delivery basis and engaging
in hedging and other strategic transactions will not be deemed to
constitute the issuance of a senior
security. |
Non-Fundamental Investment
Restrictions
The fund
may not:
(9)
Knowingly invest more than 15% of the value of its net assets in securities or
other investments, including repurchase agreements maturing in more than
seven days but excluding master demand notes, which are not readily
marketable.
(10) Make
short sales of securities or maintain a short position, if, when added together,
more than 25% of the value of the fund’s net assets would be: (i)
deposited as collateral for the obligation to replace securities borrowed to
effect short sales; and (ii) allocated to segregated accounts in connection
with short
sales, except that it may obtain such short-term credits as may be required to
clear transactions. For purposes of this restriction, collateral arrangements
with respect to hedging and other strategic transactions will not be deemed to
involve the use of margin. Short sales “against-the-box” are not
subject to this limitation.
(11)
Pledge, hypothecate, mortgage or transfer (except as provided in restriction
(8)) as security for indebtedness any securities held by the fund, except in
an amount of not more than 33¹/3 %* of the value of the fund’s total assets and
then only to secure borrowings permitted by restrictions (3) and (10).
For purposes of this restriction, collateral arrangements with respect to
hedging and other strategic transactions will not be deemed to involve a
pledge of assets.
For
purposes of restriction (11), “other strategic transactions” can include short
sales and derivative transactions intended for non-hedging
purposes.
Mid
Cap Growth Fund
Fundamental Investment
Restrictions
|
(1)
Concentration. The fund may not concentrate its investments in a
particular industry, as that term is used in the 1940 Act, as amended, and
as interpreted
or modified by regulatory authority having jurisdiction, from time to
time. |
|
(2)
Diversification. The fund has elected to be treated as a diversified
investment company, as that term is used in the 1940 Act, as amended, and
as
interpreted or modified by regulatory authority having jurisdiction, from
time to time. |
|
(3)
Borrowing. The fund may not borrow money, except as permitted under the
1940 Act, as amended, and as interpreted or modified by regulatory
authority
having jurisdiction, from time to time. |
|
(4)
Underwriting. The fund may not engage in the business of underwriting
securities issued by others, except to the extent that the fund may be
deemed
to be an underwriter in connection with the disposition of portfolio
securities. |
|
(5)
Real Estate. The fund may not purchase or sell real estate, which term
does not include securities of companies which deal in real estate or
mortgages
or investments secured by real estate or interests therein, except that
each fund reserves freedom of action to hold and to sell real estate
acquired as a result of the fund’s ownership of
securities. |
|
(6)
Commodities. The fund may not purchase or sell commodities, except as
permitted under the 1940 Act, as amended, and as interpreted or
modified
by regulatory authority having jurisdiction, from time to
time. |
|
(7)
Loans. A fund may not make loans except as permitted under the 1940 Act,
as amended, and as interpreted or modified by regulatory authority
having
jurisdiction, from time to time. |
|
(8)
Senior Securities. A fund may not issue senior securities, except as
permitted under the 1940 Act, as amended, and as interpreted or modified
by
regulatory authority having jurisdiction, from time to
time. |
|
For
purposes of Fundamental Restriction No. 8, purchasing securities on a
when-issued, forward commitment or delayed delivery basis and engaging
in hedging and other strategic transactions will not be deemed to
constitute the issuance of a senior
security. |
Non-Fundamental Investment
Restrictions
Non-Fundamental
Investment Restrictions
(9)
Knowingly invest more than 15% of the value of its net assets in securities or
other investments, including repurchase agreements maturing in more than
seven days but excluding master demand notes, which are not readily
marketable.
(10) Make
short sales of securities or maintain a short position, if, when added together,
more than 25% of the value of the fund’s net assets would be: (i)
deposited as collateral for the obligation to replace securities borrowed to
effect short sales; and (ii) allocated to segregated accounts in connection
with short
sales, except that it may obtain such short-term credits as may be required to
clear transactions. For purposes of this restriction, collateral arrangements
with respect to hedging and other strategic transactions will not be deemed to
involve the use of margin. Short sales “against-the-box” are not
subject to this limitation.
(11)
Pledge, hypothecate, mortgage or transfer (except as provided in restriction
(8)) as security for indebtedness any securities held by the fund, except in
an amount of not more than 33¹/3 %* of the value of the fund’s total assets and
then only to secure borrowings permitted by restrictions (3) and (10).
For purposes of this restriction, collateral arrangements with respect to
hedging and other strategic transactions will not be deemed to involve a
pledge of assets.
For
purposes of restriction (11), “other strategic transactions” can include short
sales and derivative transactions intended for non-hedging
purposes.
Money
Market Fund
Fundamental Investment
Restrictions
(1) The
fund may not borrow money in an amount in excess of 33 1/3% of its total assets,
and then only as a temporary measure for extraordinary or emergency
purposes (except that it may enter into a reverse repurchase agreement within
the limits described in the Prospectus or this SAI), or pledge,
mortgage or hypothecate an amount of its assets (taken at market value) in
excess of 15% of its total assets, in each case taken at the lower of
cost or
market value. For the purpose of this restriction, collateral arrangements with
respect to options, futures contracts, options on futures contracts
and collateral arrangements with respect to initial and variation margins are
not considered a pledge of assets.
(2) The
fund may not engage in the business of underwriting securities issued by others,
except to the extent that the fund may be deemed to be an underwriter
in connection with the disposition of portfolio securities.
(3) The
fund may not purchase or sell real estate, which term does not include
securities of companies which deal in real estate or mortgages or investments
secured by real estate or interests therein, except that the fund reserves
freedom of action to hold and to sell real estate acquired as a result of
the fund’s ownership of securities.
(4) The
fund may not make loans except as permitted under the 1940 Act, as amended, and
as interpreted or modified by regulatory authority having jurisdiction,
from time to time.
(5) The
fund has elected to be treated as a diversified investment company, as that term
is used in the 1940 Act, as amended, and as interpreted or modified by
regulatory authority having jurisdiction, from time to time.
(6) The
fund may not issue senior securities, except as permitted under the 1940 Act, as
amended, and as interpreted or modified by regulatory authority
having jurisdiction, from time to time.
(7) The
fund may not concentrate its investments in a particular industry, as that term
is used in the 1940 Act, as amended, and as interpreted or modified by
regulatory authority having jurisdiction, from time to time. For the elimination
of doubt, this limitation does not apply to investments in obligations
of the U.S. Government or any of its agencies, instrumentalities or authorities
and instruments issued by U.S. banks, including foreign branches of
U.S. banks if the Advisor has determined that the U.S. bank unconditionally
responsible for the payment obligations of the foreign branch.
(8) The
fund may not purchase or retain mineral leases, commodities or commodity
contracts (except contracts for the future delivery of fixed income securities,
stock index and currency futures and options on such futures) in the ordinary
course of its business. The fund reserves the freedom of action to
hold and to sell mineral leases, commodities or commodity contracts acquired as
a result of the ownership of securities.
Non-Fundamental Investment
Restriction
The fund,
in implementing its fundamental policy on diversification, will not consider a
guarantee of a security to be a security of the guarantor, provided
that the value of all securities issued or guaranteed by that guarantor, and
owned by the fund, does not exceed 10% of the fund’s total assets. In
determining the issuer of a security, each state and each political subdivision,
agency, and instrumentality of each state and each multi state agency
of which
such state is a member is a separate issuer. Where securities are backed only by
assets and revenues of a particular instrumentality, facility or
subdivision, such entity is considered the issuer.
Additional
Information Regarding Fundamental Restrictions
Concentration. While the
1940 Act does not define what constitutes “concentration” in an industry, the
staff of the SEC takes the position that any fund that
invests more than 25% of its total assets in a particular industry (excluding
the U.S. government, its agencies or instrumentalities) is deemed to
be
“concentrated” in that industry. With respect to a fund’s investment in loan
participations, if any, the fund treats both the borrower and the financial
intermediary
under a loan participation as issuers for purposes of determining whether the
fund has concentrated in a particular industry. For
purposes of
each fund’s fundamental restriction regarding concentration, the fund will take
into account the concentration policies of the underlying funds in
which the fund invests.
Diversification. A
diversified fund, as to at least 75% of the value of its total assets, generally
may not, except with respect to government securities and
securities of other investment companies, invest more than 5% of its total
assets in the securities, or own more than 10% of the outstanding voting
securities,
of any one issuer. In determining the issuer of a municipal security, each
state, each political subdivision, agency, and instrumentality of each state
and each multi-state agency of which such state is a member is considered a
separate issuer. In the event that securities are backed only by assets and
revenues of a particular instrumentality, facility or subdivision, such entity
is considered the issuer.
Borrowing. The 1940
Act permits a fund to borrow money in amounts of up to one-third of its total
assets, at the time of borrowing, from banks for any purpose (a
fund’s total assets include the amounts being borrowed). To limit the risks
attendant to borrowing, the 1940 Act requires a fund to maintain at all
times an “asset coverage” of at least 300% of the amount of its borrowings, not
including borrowings for temporary purposes in an amount not exceeding
5% of the value of its total assets. “Asset coverage” means the ratio that the
value of a fund’s total assets (including amounts borrowed), minus
liabilities other than borrowings, bears to the aggregate amount of all
borrowings.
Commodities. Under the
federal securities and commodities laws, certain financial instruments such as
futures contracts and options thereon, including
currency futures, stock index futures or interest rate futures, and certain
swaps, including currency swaps, interest rate swaps, swaps on broad-based
securities indices, and certain credit default swaps, may, under certain
circumstances, also be considered to be commodities. Nevertheless,
the 1940 Act does not prohibit investments in physical commodities or contracts
related to physical commodities. Funds typically invest in futures
contracts and related options on these and other types of commodity contracts
for hedging purposes, to implement tax or cash management
strategies, or to enhance returns.
Loans. Although
the 1940 Act does not prohibit a fund from making loans, SEC staff
interpretations currently prohibit funds from lending more than one-third
of their total assets, except through the purchase of debt obligations or the
use of repurchase agreements. A repurchase agreement is an agreement
to purchase a security, coupled with an agreement to sell that security back to
the original seller on an agreed-upon date at a price that reflects
current interest rates. The SEC frequently treats repurchase agreements as
loans.
Senior
Securities. “Senior
securities” are defined as fund obligations that have a priority over a fund’s
shares with respect to the payment of dividends or the
distribution of fund assets. The 1940 Act prohibits a fund from issuing any
class of senior securities or selling any senior securities of which it is
the issuer,
except that a fund is permitted to borrow from a bank so long as, immediately
after such borrowings, there is an asset coverage of at least 300% for
all borrowings of a fund (not including borrowings for temporary purposes in an
amount not exceeding 5% of the value of a fund’s total assets). In
the event that such asset coverage falls below this percentage, a fund must
reduce the amount of its borrowings within three days (not including
Sundays and holidays) so that the asset coverage is restored to at least 300%.
The fundamental investment restriction regarding senior securities
will be interpreted so as to permit collateral arrangements with respect to
swaps, options, forward or futures contracts or other derivatives, or the
posting of initial or variation margin. In addition, the recent adoption of the
Derivatives Rule may impact how a fund uses senior securities and other
investments, but a fund is not required to comply with those requirements until
2022. See “Risk of Additional Government Regulation of Derivatives”
for additional information.
Except with
respect to the fundamental investment restriction on borrowing, if a percentage
restriction is adhered to at the time of an investment, a later
increase or decrease in the investment’s percentage of the value of a fund’s
total assets resulting from a change in such values or assets will not
constitute
a violation of the percentage restriction. Any subsequent change in a rating
assigned by any rating service to a security (or, if unrated, any change in
the subadvisor’s assessment of the security), or change in the percentage of
portfolio assets invested in certain securities or other instruments,
or change in the average duration of a fund’s investment portfolio, resulting
from market fluctuations or other changes in the fund’s total assets will
not require the fund to dispose of an investment until the subadvisor determines
that it is practicable to sell or close out the investment without
undue market or tax consequences to the fund. In the event that rating services
assign different ratings to the same security, the subadvisor will
determine which rating it believes best reflects the security’s quality and risk
at that time, which may be the highest of the several assigned
ratings.
Additional
Investment Policies for Money Market Fund
Money
Market Fund maintains a dollar-weighted average maturity of 60 days or less and
a dollar-weighted average life to maturity of 120 days or less (unlike the
fund’s dollar-weighted average maturity, the fund’s dollar-weighted average life
is calculated without reference to the re-set dates of variable
rate debt obligations held by the fund).
Money
Market Fund intends to hold securities that are sufficiently liquid to meet
reasonably foreseeable shareholder redemptions in light of the fund’s
obligations
under Section 22(e) of the 1940 Act and any commitments the fund has made to
shareholders. Money Market Fund will not acquire any security
if, after doing so, more than 5% of its total assets would be invested in
illiquid securities. An “illiquid security” is a security that cannot be sold
or disposed
of in the ordinary course of business within seven calendar days at
approximately the value ascribed to it by the fund. In addition, Money
Market Fund
will hold sufficiently liquid securities to meet the following daily and weekly
standards: (a) the fund will not acquire any security other than cash, U.S.
government securities, or securities convertible to cash within one business day
(“Daily Liquid Assets”) if, immediately after the acquisition, the fund
would have invested less than 10% of its total assets in Daily Liquid Assets;
and (b) the fund will not acquire any security other than cash, U.S.
government
securities, securities convertible to cash within five business days, or
government securities issued by a person controlled or supervised by and
acting as an instrumentality of the U.S. government pursuant to authority
granted by Congress that: (a) are issued at a discount to the principal
amount to
be repaid at maturity; and (b) have a remaining maturity date of 60 days or less
(“Weekly Liquid Assets”) if, immediately after the acquisition,
the fund would have invested less than 30% of its total assets in Weekly Liquid
Assets.
Investment
Policies that May Be Changed Only on 60 Days’ Notice to
Shareholders
In order to
comply with Rule 35d-1 under the 1940 Act, the 80% investment policy for each of
Disciplined Value Mid Cap Fund, Diversified Real Assets Fund,
Fundamental
Equity Income Fund, Mid Cap Growth Fund, and U.S.
Growth Fund is subject to change only upon 60 days’ prior notice to
shareholders. Refer to the applicable
Prospectus for each fund’s “Principal investment strategies.”
PORTFOLIO
TURNOVER
The annual
rate of portfolio turnover will normally differ for each fund and may vary from
year to year as well as within a year. A high
rate of portfolio turnover
(100% or more) generally involves correspondingly greater brokerage commission
expenses, which must be borne directly by the fund. Portfolio
turnover is calculated by dividing the lesser of purchases or sales of portfolio
securities during the fiscal period by the monthly average of the value of
the fund’s portfolio securities. (Excluded from the computation are all
securities, including options, with maturities at the time of acquisition of
one year or
less).
No
portfolio turnover rate can be calculated for Money Market Fund due to the short
maturities of the instruments purchased. Portfolio
turnover rates can change
from year to year due to various factors, including among others, portfolio
adjustments made in response to market conditions.
The
portfolio turnover rates for the funds (other than Money Market Fund) for the
fiscal periods ended March 31, 2022 and March
31, 2021 were as
follows:
|
|
|
Fund |
2022 (%) |
2021 (%) |
Disciplined
Value Fund |
38 |
55 |
Disciplined
Value Mid Cap Fund |
26 |
52 |
Diversified
Real Assets Fund |
49 |
82 |
Fundamental
Equity Income Fund1
|
- |
- |
Global
Shareholder Yield Fund |
24 |
30 |
International
Growth Fund |
78 |
78 |
Mid
Cap Growth Fund |
692
|
913
|
U.S.
Growth Fund |
91 |
101 |
1 |
The
fund commenced operations on June 24, 2022. |
2 |
Fiscal
period from September 1, 2021 to March 31, 2022. The fund commenced
operations on October 18, 2021. The fiscal period ended March 31, 2022
includes the historical
operating results of the predecessor fund for the period ended September 1
through October 15, 2021. |
3 |
Predecessor
fund information for its fiscal year ended August 31,
2021. |
THOSE
RESPONSIBLE FOR MANAGEMENT
The
business of the Trusts, each an open-end management investment company, is
managed by the Board, including certain Trustees who are not “interested
persons” (as defined in the 1940 Act) of the funds or the Trusts (the
“Independent Trustees”). The Trustees elect officers who are responsible
for the day-to-day operations of the funds or the Trusts and who execute
policies formulated by the Trustees. Several of the Trustees and officers of
the Trusts also are officers or directors of the Advisor or the Distributor.
Each Trustee oversees all of the funds and other funds in the John Hancock
Fund Complex (as defined below).
The tables
below present certain information regarding the Trustees and officers of the
Trusts, including their principal occupations which, unless specific
dates are shown, are of at least five years’ duration. In addition, the tables
include information concerning other directorships held by each Trustee in
other registered investment companies or publicly traded companies. Information
is listed separately for each Trustee who is an “interested person” (as
defined in the 1940 Act) of the Trusts (each a “Non-Independent Trustee”) and
the Independent Trustees. As of March 31, 2022, the “John
Hancock
Fund Complex” consisted of 191 funds
(including separate series of series mutual funds). Each
Trustee, other than Andrew G. Arnott, James R. Boyle,
Marianne Harrison, and Frances G. Rathke, was most recently elected to serve on
the Board at a shareholder meeting held on November 15, 2012. The
Board appointed Mr. Arnott and Ms. Harrison to serve as Non-Independent Trustees
on June 20, 2017 and June 19, 2018, respectively, and Ms.
Rathke to serve as Independent Trustee on September 15, 2020. In addition,
although James R. Boyle initially was designated a Non-Independent
Trustee, as of March 22, 2018, he is considered an Independent
Trustee. The
address of each Trustee and officer of the Trusts is 200 Berkeley
Street, Boston, Massachusetts 02116.
|
|
|
|
Name (Birth
Year) |
Current
Position(s) with the Trusts1
|
Principal
Occupation(s) and Other
Directorships During
the Past 5 Years |
Number
of Funds in John Hancock
Fund Complex Overseen
by Trustee |
Non-Independent
Trustees |
|
|
Andrew
G. Arnott2
(1971) |
Trustee,
each Trust (since 2017); President
(since 2014) |
Head
of Wealth and Asset Management,
United States and Europe,
for John Hancock and Manulife
(since 2018); Director and
Executive Vice President, John Hancock
Investment Management LLC
(since 2005, including prior positions);
Director and Executive Vice
President, John Hancock Variable
Trust Advisers LLC (since 2006,
including prior positions); President,
John Hancock Investment
Management Distributors
LLC (since 2004, including
prior positions); President
of various trusts within the
John Hancock Fund Complex (since
2007, including prior positions).
Trustee
of various trusts within the John
Hancock Fund Complex (since
2017). |
191 |
|
|
|
|
Name (Birth
Year) |
Current
Position(s) with the Trusts1 |
Principal
Occupation(s) and Other
Directorships During
the Past 5 Years |
Number
of Funds in John Hancock
Fund Complex Overseen
by Trustee |
Non-Independent
Trustees |
|
|
Marianne
Harrison2 (1963) |
Trustee,
each Trust (since 2018) |
President
and CEO, John Hancock (since
2017); President and CEO, Manulife
Canadian Division (2013–2017);
Member, Board of Directors,
Boston Medical Center (since
2021); Member, Board of Directors,
CAE Inc. (since 2019); Member,
Board of Directors, MA Competitive
Partnership Board (since
2018); Member, Board of Directors,
American Council of Life Insurers
(ACLI) (since 2018); Member,
Board of Directors, Communitech,
an industry-led innovation
center that fosters technology
companies in Canada (2017–2019);
Member, Board of Directors,
Manulife Assurance Canada
(2015–2017); Board Member,
St. Mary’s General Hospital
Foundation (2014–2017);
Member, Board of Directors,
Manulife Bank of Canada (2013–2017);
Member, Standing Committee
of the Canadian Life & Health
Assurance Association (2013–2017);
Member, Board of Directors,
John Hancock USA, John
Hancock Life & Health, John Hancock
New York (2012–2013).
Trustee
of various trusts within the John
Hancock Fund Complex (since
2018). |
191 |
1 |
Because
each Trust does not hold regular annual shareholder meetings, each Trustee
holds office for an indefinite term until his or her successor is duly
elected and qualified
or until he or she dies, retires, resigns, is removed or becomes
disqualified. Trustees may be removed from the Trust (provided the
aggregate number of Trustees after
such removal shall not be less than one) with cause or without cause, by
the action of two-thirds of the remaining Trustees or by action of
two-thirds of the outstanding shares
of the Trust. |
2 |
The
Trustee is a Non-Independent Trustee due to current or former positions
with the Advisor and certain of its affiliates. |
|
|
|
|
Name (Birth
Year) |
Current
Position(s) with
the Trusts1
|
Principal
Occupation(s) and Other Directorships During
the Past 5 Years |
Number
of Funds in
John Hancock Fund
Complex Overseen
by Trustee |
Independent
Trustees |
|
|
James
R. Boyle (1959) |
Trustee,
each Trust (2005–2010,
2012–2014,
and since
2015) |
Foresters
Financial, Chief Executive Officer (2018–2022) and board member
(2017–2022). Manulife Financial and John Hancock, more than 20
years, retiring in 2012 as Chief Executive Officer, John Hancock and
Senior
Executive Vice President, Manulife Financial.
Trustee
of various trusts within the John Hancock Fund Complex (2005–2014
and since 2015). |
191 |
|
|
|
|
Name (Birth
Year) |
Current
Position(s) with
the Trusts1 |
Principal
Occupation(s) and Other Directorships During
the Past 5 Years |
Number
of Funds in
John Hancock Fund
Complex Overseen
by Trustee |
Independent
Trustees |
|
|
Peter
S. Burgess (1942) |
Trustee,
Current Interest
and Investment
Trust (since
2012); Trustee,
John Hancock
Funds III (2005–2006
and since
2012) |
Consultant
(financial, accounting, and auditing matters) (since 1999); Certified
Public Accountant; Partner, Arthur Andersen (independent public
accounting
firm) (prior to 1999); Director, Lincoln Educational Services Corporation
(2004–2021); Director, Symetra Financial Corporation (2010–2016);
Director, PMA Capital Corporation (2004–2010).
Trustee
of various trusts within the John Hancock Fund Complex (since 2005). |
191 |
William
H. Cunningham (1944) |
Trustee,
Current Interest
and Investment
Trust (since
1986); Trustee,
John Hancock
Funds III (since
2006) |
Professor,
University of Texas, Austin, Texas (since 1971); former Chancellor,
University of Texas System and former President of the University
of Texas, Austin, Texas; Director (since 2006), Lincoln National
Corporation
(insurance); Director, Southwest Airlines (since 2000).
Trustee
of various trusts within the John Hancock Fund Complex (since 1986). |
191 |
Grace
K. Fey (1946) |
Trustee,
each Trust (since
2012) |
Chief
Executive Officer, Grace Fey Advisors (since 2007); Director and
Executive
Vice President, Frontier Capital Management Company (1988–2007);
Director, Fiduciary Trust (since 2009).
Trustee
of various trusts within the John Hancock Fund Complex (since 2008). |
191 |
Deborah
C. Jackson (1952) |
Trustee,
each Trust (since
2008) |
President,
Cambridge College, Cambridge, Massachusetts (since 2011); Board
of Directors, Amwell Corporation (since 2020); Board of Directors,
Massachusetts
Women’s Forum (2018–2020); Board of Directors, National
Association of Corporate Directors/New England (2015–2020); Chief
Executive Officer, American Red Cross of Massachusetts Bay
(2002–2011);
Board of Directors of Eastern Bank Corporation (since 2001); Board
of Directors of Eastern Bank Charitable Foundation (since 2001);
Board
of Directors of Boston Stock Exchange (2002–2008); Board of Directors
of Harvard Pilgrim Healthcare (health benefits company) (2007–2011).
Trustee
of various trusts within the John Hancock Fund Complex (since 2008). |
191 |
Hassell
H. McClellan (1945) |
Trustee,
Current Interest
and Investment
Trust (since
2012), Trustee,
John Hancock
Funds III (2005–2006
and since
2012); Chairperson
of the Board,
each Trust (since
2017) |
Director/Trustee,
Virtus Funds (2008–2020); Director, The Barnes Group (2010–2021);
Associate Professor, The Wallace E. Carroll School of Management,
Boston College (retired 2013).
Trustee
(since 2005) and Chairperson of the Board (since 2017) of various
trusts
within the John Hancock Fund Complex. |
191 |
|
|
|
|
Name (Birth
Year) |
Current
Position(s) with
the Trusts1 |
Principal
Occupation(s) and Other Directorships During
the Past 5 Years |
Number
of Funds in
John Hancock Fund
Complex Overseen
by Trustee |
Independent
Trustees |
|
|
Steven
R. Pruchansky (1944) |
Trustee,
Current Interest
and Investment
Trust (since
1994); Trustee,
John Hancock
Funds III (since
2006); Vice Chairperson
of the Board,
each Trust (since
2012) |
Managing
Director, Pru Realty (since 2017); Chairman and Chief Executive
Officer,
Greenscapes of Southwest Florida, Inc. (2014-2020); Director and
President,
Greenscapes of Southwest Florida, Inc. (until 2000); Member, Board
of Advisors, First American Bank (until 2010); Managing Director,
Jon
James, LLC (real estate) (since 2000); Partner, Right Funding, LLC
(2014-2017);
Director, First Signature Bank & Trust Company (until 1991);
Director, Mast Realty Trust (until 1994); President, Maxwell Building
Corp. (until 1991).
Trustee
(since 1992), Chairperson of the Board (2011–2012), and Vice Chairperson
of the Board (since 2012) of various trusts within the John Hancock
Fund Complex. |
191 |
Frances
G. Rathke (1960) |
Trustee,
each Trust (since
2020) |
Director,
Audit Committee Chair, Oatly Group AB (plant-based drink company)
(since 2021); Director, Audit Committee Chair and Compensation
Committee Member, Green Mountain Power Corporation (since
2016); Director, Treasurer and Finance & Audit Committee Chair,
Flynn
Center for Performing Arts (since 2016); Director and Audit Committee
Chair, Planet Fitness (since 2016); Chief Financial Officer and
Treasurer,
Keurig Green Mountain, Inc. (2003-retired 2015).
Trustee
of various trusts within the John Hancock Fund Complex (since 2020). |
191 |
Gregory
A. Russo (1949) |
Trustee,
Current Interest
and Investment
Trust (since
2009); Trustee,
John Hancock
Funds III (since
2008) |
Director
and Audit Committee Chairman (2012–2020), and Member, Audit
Committee and Finance Committee (2011–2020), NCH Healthcare System,
Inc. (holding company for multi-entity healthcare system); Director
and
Member (2012-2018), and Finance Committee Chairman (2014-2018),
The Moorings, Inc. (nonprofit continuing care community); Global
Vice
Chairman, Risk & Regulatory Matters, KPMG LLP (KPMG) (2002–2006);
Vice Chairman, Industrial Markets, KPMG (1998–2002).
Trustee
of various trusts within the John Hancock Fund Complex (since 2008). |
191 |
1 |
Because
each Trust does not hold regular annual shareholder meetings, each Trustee
holds office for an indefinite term until his or her successor is duly
elected and qualified
or until he or she dies, retires, resigns, is removed or becomes
disqualified. Trustees may be removed from the Trust (provided the
aggregate number of Trustees after
such removal shall not be less than one) with cause or without cause, by
the action of two-thirds of the remaining Trustees or by action of
two-thirds of the outstanding shares
of the Trust. |
Principal
Officers who are not Trustees
The
following table presents information regarding the current principal officers of
the Trusts who are not Trustees, including their principal occupations
which, unless specific dates are shown, are of at least five years’ duration.
Each of the officers is an affiliated person of the Advisor. All of the
officers listed are officers or employees of the Advisor or its affiliates. All
of the officers also are officers of all of the other funds for which the
Advisor
serves as investment advisor.
|
|
|
Name
(Birth Year) |
Current
Position(s) with
the Trusts1
|
Principal
Occupation(s) During Past 5 Years |
Charles
A. Rizzo (1957) |
Chief
Financial Officer
(since 2007) |
Vice
President, John Hancock Financial Services (since 2008); Senior Vice
President, John Hancock Investment
Management LLC and John Hancock Variable Trust Advisers LLC (since 2008);
Chief Financial
Officer of various trusts within the John Hancock Fund Complex (since
2007). |
Salvatore
Schiavone (1965) |
Treasurer
(since 2010) |
Assistant
Vice President, John Hancock Financial Services (since 2007); Vice
President, John Hancock
Investment Management LLC and John Hancock Variable Trust Advisers LLC
(since 2007); Treasurer
of various trusts within the John Hancock Fund Complex (since 2007,
including prior positions). |
|
|
|
Name
(Birth Year) |
Current
Position(s) with
the Trusts1 |
Principal
Occupation(s) During Past 5 Years |
Christopher
(Kit) Sechler (1973) |
Secretary
and Chief Legal
Officer (since 2018) |
Vice
President and Deputy Chief Counsel, John Hancock Investment Management
(since 2015); Assistant
Vice President and Senior Counsel (2009–2015), John Hancock Investment
Management; Assistant
Secretary of John Hancock Investment Management LLC and John Hancock
Variable Trust Advisers
LLC (since 2009); Chief Legal Officer and Secretary of various trusts
within the John Hancock
Fund Complex (since 2009, including prior positions). |
Trevor
Swanberg (1979) |
Chief
Compliance Officer
(since 2020) |
Chief
Compliance Officer, John Hancock Investment Management LLC and John
Hancock Variable Trust
Advisers LLC (since 2020); Deputy Chief Compliance Officer, John Hancock
Investment Management
LLC and John Hancock Variable Trust Advisers LLC (2019–2020); Assistant
Chief Compliance
Officer, John Hancock Investment Management LLC and John Hancock Variable
Trust Advisers
LLC (2016–2019); Vice President, State Street Global Advisors (2015–2016);
Chief Compliance
Officer of various trusts within the John Hancock Fund Complex (since
2016, including prior
positions). |
1 |
Each
officer holds office for an indefinite term until his or her successor is
duly elected and qualified or until he or she dies, retires, resigns, is
removed or becomes disqualified. |
Additional
Information about the Trustees
In addition
to the description of each Trustee’s Principal Occupation(s) and Other
Directorships set forth above, the following provides further information
about each Trustee’s specific experience, qualifications, attributes or skills
with respect to each Trust. The information in this section should not
be understood to mean that any of the Trustees is an “expert” within the meaning
of the federal securities laws.
The Board
believes that the different perspectives, viewpoints, professional experience,
education, and individual qualities of each Trustee represent a diversity
of experiences and a variety of complementary skills and
expertise. Each
Trustee has experience as a Trustee of the Trusts as well as experience
as a Trustee of other John Hancock funds. It is the Trustees’ belief that this
allows the Board, as a whole, to oversee the business of the funds and
the other funds in the John Hancock Fund Complex in a manner consistent with the
best interests of the funds’ shareholders. When considering
potential nominees to fill vacancies on the Board, and as part of its annual
self-evaluation, the Board reviews the mix of skills and other relevant
experiences of the Trustees.
Independent
Trustees
James
R. Boyle –
Mr. Boyle
has high-level executive, financial, operational, governance, regulatory and
leadership experience in the financial services industry,
including in the development
and management of registered investment companies, variable annuities,
retirement and insurance products. Mr. Boyle
is the former President and CEO of a large international fraternal life
insurance company and is the former President and CEO of multi-line life
insurance and financial services companies. Mr. Boyle began his career as a
Certified Public Accountant with Coopers & Lybrand.
Peter
S. Burgess – As a
financial consultant, Certified Public Accountant, and former partner in a major
international public accounting firm, Mr. Burgess has
experience in the auditing of financial services companies and mutual funds. He
also has experience as a director of publicly traded operating
companies.
William
H. Cunningham – Mr.
Cunningham has management and operational oversight experience as a former
Chancellor and President of a major university.
Mr. Cunningham regularly teaches a graduate course in corporate governance at
the law school and at the Red McCombs School of Business at
The University of Texas at Austin. He also has oversight and corporate
governance experience as a current and former director of a number of
operating companies, including an insurance company.
Grace
K. Fey – Ms. Fey
has significant governance, financial services, and asset management industry
expertise based on her extensive non-profit board
experience, as well as her experience as a consultant to non-profit and
corporate boards, and as a former director and executive of an investment
management firm.
Deborah
C. Jackson – Ms.
Jackson has leadership, governance, management, and operational oversight
experience as the lead director of a large bank,
president of a college, and as the former chief executive officer of a major
charitable organization. She also has expertise in financial services
matters and
oversight and corporate governance experience as a current and former director
of various other corporate organizations, including an insurance
company, a regional stock exchange, a telemedicine company, and non-profit
entities.
Hassell
H. McClellan – As a
former professor of finance and policy in the graduate management department of
a major university, a director of
a public company,
and as a former director of several privately held companies, Mr. McClellan has
experience in corporate and financial matters. He also has experience
as a director of other investment companies not affiliated with the
Trusts.
Steven
R. Pruchansky – Mr.
Pruchansky has entrepreneurial, executive and financial experience as a senior
officer and chief executive of business in the retail,
service and distribution companies and a current and former director of real
estate and banking companies.
Frances
G. Rathke – Through
her former positions in senior financial roles, as a former Certified Public
Accountant, and as a consultant on strategic and
financial matters, Ms. Rathke has experience as a leader overseeing, conceiving,
implementing, and analyzing strategic and financial growth
plans, and
financial statements. Ms. Rathke also has experience in the auditing of
financial statements and related materials. In addition, she has experience
as a director of various organizations, including a publicly traded company and
a non-profit entity.
Gregory
A. Russo – As a
retired Certified Public Accountant, Mr. Russo served as a partner and Global
Vice Chairman in a major independent registered
public accounting firm, as well as
a member of its geographic boards of directors and International Executive Team.
As a result
of Mr. Russo’s
diverse global responsibilities, he possesses accounting, finance and executive
operating experience.
Non-Independent
Trustees
Andrew
G. Arnott – Through
his positions as Executive Vice President of John Hancock Financial Services;
Director and Executive Vice President of John
Hancock Investment Management LLC and John
Hancock Variable Trust Advisers LLC; President of John Hancock Investment
Management Distributors
LLC; and President of the John Hancock Fund Complex, Mr. Arnott has experience
in the management of investments, registered investment
companies, variable annuities and retirement products, enabling him to provide
management input to the Board.
Marianne
Harrison – Through
her position as President and CEO, John Hancock, and previous experience as
President and CEO, Manulife Canadian Division,
President and General Manager for John Hancock Long-Term Care Insurance, and
Executive Vice President and Controller for Manulife, Ms. Harrison
has experience as a strategic business builder expanding product offerings and
distribution, enabling her to provide management input to the
Board.
Duties
of Trustees; Committee Structure
Each Trust
is organized as a Massachusetts business trust. Under each Declaration of Trust,
the Trustees are responsible for managing the affairs of the Trust,
including the appointment of advisors and subadvisors. Each Trustee has the
experience, skills, attributes or qualifications described above (see
“Principal Occupation(s) and Other Directorships” and “Additional Information
about the Trustees” above). The Board appoints officers who assist in managing
the day-to-day affairs of the Trusts. The Board met five times
during the fiscal year ended March 31, 2022.
The Board
has appointed an Independent Trustee as Chairperson. The Chairperson presides at
meetings of the Trustees and may call meetings of the Board and
any Board committee whenever he deems it necessary. The Chairperson participates
in the preparation of the agenda for meetings of the Board and
the identification of information to be presented to the Board with respect to
matters to be acted upon by the Board. The Chairperson also acts as a
liaison with the funds’ management, officers, attorneys, and other Trustees
generally between meetings. The Chairperson may perform such other
functions as may be requested by the Board from time to time. The Board also has
designated a Vice Chairperson to serve in the absence of the Chairperson.
Except for any duties specified in this SAI or pursuant to a Trust’s Declaration
of Trust or By-laws, or as assigned by the Board, the designation
of a Trustee as Chairperson or Vice Chairperson does not impose on that Trustee
any duties, obligations or liability that are greater than the duties,
obligations or liability imposed on any other Trustee, generally. The Board has
designated a number of standing committees as further described
below, each of which has a Chairperson. The Board also may designate working
groups or ad hoc committees as it deems appropriate.
The Board
believes that this leadership structure is appropriate because it allows the
Board to exercise informed and independent judgment over matters
under its purview, and it allocates areas of responsibility among committees or
working groups of Trustees and the full Board in a manner that enhances
effective oversight. The Board considers leadership by an Independent Trustee as
Chairperson to be integral to promoting effective independent
oversight of the funds’ operations and meaningful representation of the
shareholders’ interests, given the specific characteristics and circumstances
of the funds. The Board also believes that having a super-majority of
Independent Trustees is appropriate and in the best interest of the funds’
shareholders. Nevertheless, the Board also believes that having interested
persons serve on the Board brings corporate and financial viewpoints
that are,
in the Board’s view, helpful elements in its decision-making process. In
addition, the Board believes that Ms. Harrison and Messrs. Arnott and
Boyle, as
current or former senior executives of the Advisor and the Distributor (or of
their parent company, MFC), and of other affiliates of the Advisor and the
Distributor, provide the Board with the perspective of the Advisor and the
Distributor in managing and sponsoring all of each Trust’s series. The
leadership
structure of the Board may be changed, at any time and in the discretion of the
Board, including in response to changes in circumstances or the
characteristics of a Trust.
Board
Committees
The Board
has established an Audit Committee; Compliance Committee; Contracts, Legal &
Risk Committee; Nominating and Governance Committee; and
Investment Committee. The current membership of each committee is set forth
below.
Audit
Committee. The Board
has a standing Audit Committee composed solely of Independent Trustees (Messrs.
Burgess and
Cunningham
and Ms.
Rathke).
Ms.
Rathke serves as
Chairperson of this Committee. This Committee reviews the internal and external
accounting and auditing procedures of the Trusts
and, among other things, considers the selection of an independent registered
public accounting firm for each Trust, approves all significant
services proposed to be performed by its independent registered public
accounting firm and considers the possible effect of such services on its
independence. This Committee met four times during the fiscal year ended March
31, 2022.
Compliance
Committee. The Board
also has a standing Compliance Committee (Mses. Fey and Jackson).
Ms. Fey
serves as Chairperson of this Committee.
This Committee reviews and makes recommendations to the full Board regarding
certain compliance matters relating to the Trusts. This Committee
met four times during the fiscal year ended March 31, 2022.
Contracts,
Legal & Risk Committee. The Board
also has a standing Contracts, Legal & Risk Committee (Messrs. Boyle,
Pruchansky, and Russo). Mr. Russo
serves as Chairperson of this Committee. This Committee oversees the initiation,
operation, and renewal of the various contracts between the Trust
and other entities. These contracts include advisory and subadvisory agreements,
custodial and transfer agency agreements and arrangements
with other service providers. The Committee also reviews the significant legal
affairs of the funds, as well as any significant regulatory
and
legislative actions or proposals affecting or relating to the funds or their
service providers. The Committee also assists the Board in its oversight
role with
respect to the processes pursuant to which the Advisor and the subadvisors
identify, manage and report the various risks that affect or could affect the
funds. This Committee met four times during the fiscal year ended March 31,
2022.
Nominating
and Governance Committee. The Board
also has a Nominating and Governance Committee composed of all of the
Independent Trustees.
This Committee will consider nominees recommended by Trust shareholders.
Nominations should be forwarded to the attention of the Secretary
of the Trust at 200 Berkeley Street, Boston, Massachusetts 02116. Any
shareholder nomination must be submitted in compliance with all of the
pertinent provisions of Rule 14a-8 under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), in order to be considered by this
Committee. This Committee met five times
during the fiscal year ended March 31, 2022.
Investment
Committee. The Board
also has an Investment Committee composed of all of the Trustees. The Investment
Committee has four
subcommittees
with the Trustees divided among the four
subcommittees (each an “Investment Sub-Committee”). Ms. Jackson and Messrs.
Boyle,
Cunningham,
and Pruchansky serve as Chairpersons of the Investment Sub-Committees. Each
Investment Sub-Committee reviews investment matters relating to
a particular group of funds in the John Hancock Fund Complex and coordinates
with the full Board regarding investment matters. The Investment
Committee met five times during the fiscal year ended March 31, 2022.
Annually,
the Board evaluates its performance and that of its Committees, including the
effectiveness of the Board’s Committee structure.
Risk
Oversight
As
registered investment companies, the funds are subject to a variety of risks,
including investment risks (such as, among others, market risk, credit
risk and
interest rate risk), financial risks (such as, among others, settlement risk,
liquidity risk and valuation risk), compliance risks, and operational
risks. As a
part of its overall activities, the Board oversees the funds’ risk management
activities that are implemented by the Advisor, the funds’ CCO and other
service providers to the funds. The Advisor has primary responsibility for the
funds’ risk management on a day-to-day basis as a part of its overall
responsibilities. Each fund’s subadvisor, subject to oversight of the Advisor,
is primarily responsible for managing investment and financial risks
as a part
of its day-to-day investment responsibilities, as well as operational and
compliance risks at its firm. The Advisor and the CCO also assist the
Board in
overseeing compliance with investment policies of the funds and regulatory
requirements and monitor the implementation of the various compliance
policies and procedures approved by the Board as a part of its oversight
responsibilities.
The Advisor
identifies to the Board the risks that it believes may affect the funds and
develops processes and controls regarding such risks. However, risk
management is a complex and dynamic undertaking and it is not always possible to
comprehensively identify and/or mitigate all such risks at all times since
risks are at times impacted by external events. In discharging its oversight
responsibilities, the Board considers risk management issues throughout
the year with the assistance of its various Committees as described below. Each
Committee meets at least quarterly and presents reports to the
Board, which may prompt further discussion of issues concerning the oversight of
the funds’ risk management. The Board as a whole also reviews
written reports or presentations on a variety of risk issues as needed and may
discuss particular risks that are not addressed in the Committee process.
The Board
has established an Investment Committee, which consists of four Investment
Sub-Committees. Each Investment Sub-Committee assists the Board in
overseeing the significant investment policies of the relevant funds and the
performance of their subadvisors. The Advisor monitors these policies
and subadvisor activities and may recommend changes in connection with the funds
to each relevant Investment Sub-Committee in response to
subadvisor requests or other circumstances. On at least a quarterly basis, each
Investment Sub-Committee reviews reports from the Advisor regarding
the relevant funds’ investment performance, which include information about
investment and financial risks and how they are managed, and from the
CCO or his/her designee regarding subadvisor compliance matters. In addition,
each Investment Sub-Committee meets periodically with the portfolio
managers of the funds’ subadvisors to receive reports regarding management of
the funds, including with respect to risk management processes.
The Audit
Committee assists the Board in reviewing with the independent auditors, at
various times throughout the year, matters relating to the funds’ financial
reporting. In addition, this Committee oversees the process of each fund’s
valuation of its portfolio securities, assisted by the funds’ Pricing
Committee
(composed of officers of the Trusts), which calculates fair value determinations
pursuant to procedures adopted by the Board.
The
Compliance Committee assists the Board in overseeing the activities of the
Trusts’ CCO with respect to the compliance programs of the funds, the
Advisor,
the subadvisors, and certain of the funds’ other service providers (the
Distributor and transfer agent). This Committee and the Board receive
and
consider periodic reports from the CCO throughout the year, including the CCO’s
annual written report, which, among other things, summarizes material
compliance issues that arose during the previous year and any remedial action
taken to address these issues, as well as any material changes to the
compliance programs.
The
Contracts, Legal & Risk Committee assists the Board in its oversight role
with respect to the processes pursuant to which the Advisor and the subadvisors
identify, assess, manage and report the various risks that affect or could
affect the funds. This Committee reviews reports from the funds’ Advisor on
a periodic basis regarding the risks facing the funds, and makes recommendations
to the Board concerning risks and risk oversight matters as the
Committee deems appropriate. This Committee also coordinates with the other
Board Committees regarding risks relevant to the other Committees,
as appropriate.
In
addressing issues regarding the funds’ risk management between meetings,
appropriate representatives of the Advisor communicate with the Chairperson
of the Board, the relevant Committee Chair, or the Trusts’ CCO, who is directly
accountable to the Board. As appropriate, the Chairperson of the
Board, the Committee Chairs and the Trustees confer among themselves, with the
Trusts’ CCO, the Advisor, other service providers, external
fund
counsel, and counsel to the Independent Trustees, to identify and review risk
management issues that may be placed on the full Board’s agenda and/or that
of an appropriate Committee for review and discussion.
In
addition, in its annual review of the funds’ advisory, subadvisory and
distribution agreements, the Board reviews information provided by the Advisor,
the
subadvisors and the Distributor relating to their operational capabilities,
financial condition, risk management processes and resources.
The Board
may, at any time and in its discretion, change the manner in which it conducts
its risk oversight role.
The Advisor
also has its own, independent interest in risk management. In this regard, the
Advisor has appointed a Risk and Investment Operations Committee,
consisting of senior personnel from each of the Advisor’s functional
departments. This Committee reports periodically to the Board and the
Contracts,
Legal & Risk Committee on risk management matters. The Advisor’s risk
management program is part of the overall risk management program of
John Hancock, the Advisor’s parent company. John Hancock’s Chief Risk Officer
supports the Advisor’s risk management program, and at the Board’s
request will report on risk management matters.
Compensation
of Trustees
Trustees
are reimbursed for travel and other out-of-pocket expenses. Each Independent
Trustee receives in the aggregate from the Trusts and the other
open-end funds in the John Hancock Fund Complex an annual retainer of
$265,000, a fee of
$22,000 for each regular meeting of the Trustees (in person
or via videoconference or teleconference) and a fee of $5,000 for each special
meeting of the Trustees (in person or via videoconference or teleconference).
The Chairperson of the Board receives an additional retainer of $180,000. The Vice
Chairperson of the Board receives an additional retainer of
$20,000. The Chairperson of each of the Audit Committee, Compliance Committee,
and Contracts, Legal & Risk Committee receives an additional
$40,000 retainer. The Chairperson of each Investment Sub-Committee receives an
additional $20,000 retainer.
The
following table provides information regarding the compensation paid by each
Trust and the other investment companies in the John Hancock Fund
Complex to the Independent Trustees for their services during the fiscal year
ended March 31, 2022.
|
|
|
|
|
Compensation
Table1
|
|
|
|
|
Name
of Trustee |
Total
Compensation from Funds
III ($) |
Total
Compensation from Current
Interest ($) |
Total
Compensation from Investment
Trust ($) |
Total
Compensation from Trusts
and the John Hancock
Fund Complex2
($) |
Independent
Trustees |
|
|
|
|
Charles
L. Bardelis3
|
36,692 |
580 |
16,335 |
243,000 |
James
R. Boyle |
64,325 |
1,151 |
28,821 |
427,500 |
Peter
S. Burgess |
65,963 |
1,184 |
29,529 |
437,500 |
William
H. Cunningham |
64,325 |
1,151 |
28,821 |
427,500 |
Grace
K. Fey |
67,656 |
1,219 |
30,291 |
447,500 |
Deborah
C. Jackson |
64,325 |
1,151 |
28,821 |
427,500 |
Hassell
H. McClellan |
89,330 |
1,661 |
39,877 |
577,500 |
James
M. Oates4
|
0 |
0 |
0 |
0 |
Steven
R. Pruchansky |
64,325 |
1,151 |
28,821 |
427,500 |
Frances
G. Rathke |
61,870 |
1,102 |
27,757 |
412,500 |
Gregory
A. Russo |
67,656 |
1,219 |
30,291 |
447,500 |
Non-Independent
Trustees |
|
|
|
|
Andrew
G. Arnott |
0 |
0 |
0 |
0 |
Marianne
Harrison |
0 |
0 |
0 |
0 |
1 |
The
Trust does not have a pension or retirement plan for any of its Trustees
or officers. |
2 |
There
were approximately 191
series in the John Hancock Fund Complex as of March 31, 2022. |
3 |
Mr.
Bardelis retired as Trustee effective
as of December
31,
2021. |
4 |
Mr.
Oates retired as
Trustee effective as of April
30, 2021. |
Trustee
Ownership of Shares of the Funds
The table
below sets forth the dollar range of the value of the shares of each fund, and
the dollar range of the aggregate value of the shares of all funds in the John
Hancock Fund Complex overseen by a Trustee, owned beneficially by the Trustees
as of December 31, 2021. For
purposes of this table, beneficial
ownership is defined to mean a direct or indirect pecuniary interest. Trustees
may own shares beneficially through group annuity contracts. Exact
dollar amounts of securities held are not listed in the table. Rather, dollar
ranges are identified.
|
|
|
|
|
|
Trust/Funds |
Disciplined
Value Fund |
Disciplined
Value Mid
Cap Fund |
Fundamental
Equity
Income1
|
Diversified
Real Assets
Fund |
Global
Shareholder
Yield Fund |
Independent
Trustees |
|
|
|
|
|
James
R. Boyle |
None |
None |
None |
None |
None |
Peter
S. Burgess |
None |
None |
None |
None |
None |
William
H. Cunningham |
None |
None |
None |
None |
None |
Grace
K. Fey |
None |
None |
None |
None |
None |
Deborah
C. Jackson |
$10,001
- $50,000 |
None |
None |
None |
None |
Hassell
H. McClellan |
None |
None |
None |
None |
None |
Steven
R. Pruchansky |
$10,001
- $50,000 |
None |
None |
None |
None |
Frances
G. Rathke |
None |
None |
None |
None |
None |
Gregory
A. Russo |
$50,001
- $100,000 |
$50,001
- $100,000 |
None |
None |
None |
Non-Independent
Trustees |
|
|
|
|
|
Andrew
G. Arnott |
$1 -
$10,000 |
None |
None |
None |
None |
Marianne
Harrison |
None |
None |
None |
None |
None |
1 |
The
fund commenced operations on June 24, 2022. |
|
|
|
|
|
|
Trust/Funds |
International
Growth
Fund |
Mid
Cap Growth Fund |
Money
Market Fund |
U.S.
Growth Fund |
Total
- John Hancock
Fund Complex |
Independent
Trustees |
|
|
|
|
|
James
R. Boyle |
None |
None |
None |
None |
Over
$100,000 |
Peter
S. Burgess |
None |
None |
None |
None |
Over
$100,000 |
William
H. Cunningham |
None |
None |
None |
None |
Over
$100,000 |
Grace
K. Fey |
None |
None |
None |
None |
Over
$100,000 |
Deborah
C. Jackson |
None |
None |
None |
$10,001
- $50,000 |
Over
$100,000 |
Hassell
H. McClellan |
None |
None |
None |
None |
Over
$100,000 |
Steven
R. Pruchansky |
$50,001-$100,000 |
None |
None |
$50,001-$100,000 |
Over
$100,000 |
Frances
G. Rathke |
None |
None |
None |
None |
Over
$100,000 |
Gregory
A. Russo |
None |
None |
None |
None |
Over
$100,000 |
Non-Independent
Trustees |
|
|
|
|
|
Andrew
G. Arnott |
None |
None |
Over
$100,000 |
None |
Over
$100,000 |
Marianne
Harrison |
None |
None |
None |
None |
Over
$100,000 |
SHAREHOLDERS
OF THE FUNDS
As of July
1, 2022, all the
Class 1 shares of International
Growth Fund were held
by JHLICO U.S.A. and JHLICO New York on behalf of certain of their separate
accounts that are used to fund group annuity contracts issued to qualified
retirement plans and that are not registered under the 1940 Act in reliance on
the exception provided by Section 3(c)(11) of that Act.
JHLICO
U.S.A. is a stock life insurance company originally organized under the laws of
Pennsylvania and redomesticated under the laws of Michigan. Its
principal address is 201 Townsend Street, Suite 900, Lansing, Michigan 48933.
JHLICO New York is a stock life insurance company organized under the
laws of New York. Its principal address is 100 Summit Lake Drive, Second Floor,
Valhalla, New York 10595. Each of JHLICO U.S.A. and JHLICO New
York is an indirect, wholly-owned subsidiary of The Manufacturers Life Insurance
Company, a Canadian stock life insurance company. MFC is the
holding company of The Manufacturers Life Insurance Company and its
subsidiaries. The principal offices of MFC are located at 200 Bloor Street
East, Toronto, Ontario, Canada M4W 1E5.
To the best
knowledge of the Trusts, as of July 1, 2022, the
Trustees and officers of each Trust, in the aggregate, beneficially owned less
than 1% of the
outstanding shares of each class of shares of each fund.
To the best
knowledge of the Trusts, as of July 1, 2022, the
following shareholders (principal holders) owned beneficially or of record 5% or
more of the
outstanding shares of the funds and classes stated below. A shareholder who owns
beneficially more than 25% of a fund or any class of a fund is deemed to
be a control person of that fund or that class of the fund, as applicable, and
therefore could determine the outcome of a shareholder meeting
with respect to a proposal directly affecting that fund or that share class, as
applicable.
|
|
|
|
|
JH
Fund Name |
Share
Class |
Name
and Address |
Percentage
Owned |
Type
of Ownership |
DISCIPLINED
VALUE |
A |
MLPF&
S FOR THE SOLE
BENEFIT OF ITS CUSTOMERS ATTN:
FUND ADMINISTRATION 4800
DEER LAKE DRIVE EAST 2ND FL JACKSONVILLE
FL 32246-6484 |
5.47% |
RECORD |
DISCIPLINED
VALUE |
A |
CHARLES
SCHWAB & CO INC SPECIAL
CUSTODY ACCOUNT FOR BENE
OF CUST ATTN
MUTUAL FUNDS 101
MONTGOMERY ST SAN
FRANCISCO CA 94104-4151 |
6.04% |
RECORD |
DISCIPLINED
VALUE |
A |
NATIONAL
FINANCIAL SERVICES LLC FEBO
CUSTOMERS MUTUAL
FUNDS 200
LIBERTY ST # 1WFC NEW
YORK NY 10281-1015 |
6.75% |
RECORD |
DISCIPLINED
VALUE |
A |
EDWARD
D JONES & CO FOR
THE BENEFIT OF CUSTOMERS 12555
MANCHESTER ROAD SAINT
LOUIS MO 63131-3710 |
47.72% |
RECORD |
DISCIPLINED
VALUE MID CAP |
A |
CHARLES
SCHWAB & CO INC SPECIAL
CUSTODY ACCOUNT FOR BENE
OF CUST ATTN
MUTUAL FUNDS 101
MONTGOMERY ST SAN
FRANCISCO CA 94104-4151 |
9.67% |
RECORD |
DISCIPLINED
VALUE MID CAP |
A |
MLPF&
S FOR THE SOLE
BENEFIT OF ITS CUSTOMERS ATTN:
FUND ADMINISTRATION 4800
DEER LAKE DRIVE EAST 2ND FL JACKSONVILLE
FL 32246-6484 |
9.97% |
RECORD |
DISCIPLINED
VALUE MID CAP |
A |
NATIONAL
FINANCIAL SERVICES LLC FEBO
CUSTOMERS MUTUAL
FUNDS 200
LIBERTY ST # 1WFC NEW
YORK NY 10281-1015 |
14.80% |
RECORD |
DISCIPLINED
VALUE MID CAP |
A |
EDWARD
D JONES & CO FOR
THE BENEFIT OF CUSTOMERS 12555
MANCHESTER ROAD SAINT
LOUIS MO 63131-3710 |
27.61% |
RECORD |
GLOBAL
SHAREHOLDER YIELD |
A |
EDWARD
D JONES & CO FOR
THE BENEFIT OF CUSTOMERS 12555
MANCHESTER ROAD SAINT
LOUIS MO 63131-3710 |
71.73% |
RECORD |
|
|
|
|
|
JH
Fund Name |
Share
Class |
Name
and Address |
Percentage
Owned |
Type
of Ownership |
INTERNATIONAL
GROWTH |
A |
NATIONAL
FINANCIAL SERVICES LLC FEBO
CUSTOMERS MUTUAL
FUNDS 200
LIBERTY ST # 1WFC NEW
YORK NY 10281-1015 |
6.63% |
RECORD |
INTERNATIONAL
GROWTH |
A |
MORGAN
STANLEY SMITH BARNEY LLC FOR
EXCLUSIVE BENEFIT OF CUSTOMERS 1 NEW
YORK PLAZA FL. 12 NEW
YORK NY 10004-1932 |
8.21% |
RECORD |
INTERNATIONAL
GROWTH |
A |
CHARLES
SCHWAB & CO INC MUTUAL
FUNDS DEPT 101
MONTGOMERY ST SAN
FRANCISCO CA 94104-4151 |
9.76% |
RECORD |
INTERNATIONAL
GROWTH |
A |
EDWARD
D JONES & CO FOR
THE BENEFIT OF CUSTOMERS 12555
MANCHESTER ROAD SAINT
LOUIS MO 63131-3710 |
48.62% |
RECORD |
MID
CAP GROWTH |
A |
JOHN
HANCOCK LIFE & HEALTH INS CO CUSTODIAN
FOR THE IRA OF CHRISTINE
G MILLER 16558
POUNCEY TRACT RD ROCKVILLE
VA 23146-1849 |
5.16% |
BENEFICIAL |
MID
CAP GROWTH |
A |
JOHN
HANCOCK LIFE & HEALTH INS CO CUSTODIAN
FOR THE IRA OF ROBERT
D STEINGRUEBL 1324
JUNO AVE SAINT
PAUL MN 55116-1627 |
5.68% |
BENEFICIAL |
MONEY
MARKET |
A |
EDWARD
D JONES & CO FOR
THE BENEFIT OF CUSTOMERS 12555
MANCHESTER ROAD SAINT
LOUIS MO 63131-3710 |
22.56% |
RECORD |
U.S.
GROWTH |
A |
NATIONAL
FINANCIAL SERVICES LLC FEBO
CUSTOMERS MUTUAL
FUNDS 200
LIBERTY ST # 1WFC NEW
YORK NY 10281-1015 |
6.80% |
RECORD |
U.S.
GROWTH |
A |
EDWARD
D JONES & CO FOR
THE BENEFIT OF CUSTOMERS 12555
MANCHESTER ROAD SAINT
LOUIS MO 63131-3710 |
11.98% |
RECORD |
DISCIPLINED
VALUE |
C |
MORGAN
STANLEY SMITH BARNEY LLC FOR
EXCLUSIVE BENEFIT OF CUSTOMERS 1 NEW
YORK PLAZA FL. 12 NEW
YORK NY 10004-1932 |
6.60% |
RECORD |
|
|
|
|
|
JH
Fund Name |
Share
Class |
Name
and Address |
Percentage
Owned |
Type
of Ownership |
DISCIPLINED
VALUE |
C |
EDWARD
D JONES & CO FOR
THE BENEFIT OF CUSTOMERS 12555
MANCHESTER ROAD SAINT
LOUIS MO 63131-3710 |
6.68% |
RECORD |
DISCIPLINED
VALUE |
C |
AMERICAN
ENTERPRISE INVESTMENT SVC FBO
CUSTOMERS 707
2ND AVE S MINNEAPOLIS
MN 55402-2405 |
7.41% |
RECORD |
DISCIPLINED
VALUE |
C |
WELLS
FARGO CLEARING SERVICES, LLC SPECIAL
CUSTODY ACCT FOR THE EXCLUSIVE
BENEFIT OF CUSTOMER 2801
MARKET ST SAINT
LOUIS MO 63103-2523 |
7.79% |
RECORD |
DISCIPLINED
VALUE |
C |
RAYMOND
JAMES OMNIBUS
FOR MUTUAL FUNDS HOUSE
ACCT FIRM 880
CARILLON PKWY ST
PETERSBURG FL 33716-1100 |
9.34% |
RECORD |
DISCIPLINED
VALUE |
C |
NATIONAL
FINANCIAL SERVICES LLC FEBO
CUSTOMERS MUTUAL
FUNDS 200
LIBERTY ST # 1WFC NEW
YORK NY 10281-1015 |
9.44% |
RECORD |
DISCIPLINED
VALUE |
C |
LPL
FINANCIAL OMNIBUS
CUSTOMER ACCOUNT ATTN:
MUTUAL FUND TRADING 4707
EXECUTIVE DRIVE SAN
DIEGO CA 92121-3091 |
12.68% |
RECORD |
DISCIPLINED
VALUE |
C |
PERSHING
LLC 1
PERSHING PLZ JERSEY
CITY NJ 07399-0001 |
15.05% |
RECORD |
DISCIPLINED
VALUE MID CAP |
C |
EDWARD
D JONES & CO FOR
THE BENEFIT OF CUSTOMERS 12555
MANCHESTER ROAD SAINT
LOUIS MO 63131-3710 |
5.44% |
RECORD |
DISCIPLINED
VALUE MID CAP |
C |
NATIONAL
FINANCIAL SERVICES LLC FEBO
CUSTOMERS MUTUAL
FUNDS 200
LIBERTY ST # 1WFC NEW
YORK NY 10281-1015 |
6.32% |
RECORD |
DISCIPLINED
VALUE MID CAP |
C |
AMERICAN
ENTERPRISE INVESTMENT SVC FBO
CUSTOMERS 707
2ND AVE S MINNEAPOLIS
MN 55402-2405 |
7.68% |
RECORD |
DISCIPLINED
VALUE MID CAP |
C |
LPL
FINANCIAL OMNIBUS
CUSTOMER ACCOUNT ATTN:
MUTUAL FUND TRADING 4707
EXECUTIVE DRIVE SAN
DIEGO CA 92121-3091 |
8.34% |
RECORD |
|
|
|
|
|
JH
Fund Name |
Share
Class |
Name
and Address |
Percentage
Owned |
Type
of Ownership |
DISCIPLINED
VALUE MID CAP |
C |
RAYMOND
JAMES OMNIBUS
FOR MUTUAL FUNDS HOUSE
ACCT FIRM 880
CARILLON PKWY ST
PETERSBURG FL 33716-1100 |
10.98% |
RECORD |
DISCIPLINED
VALUE MID CAP |
C |
MORGAN
STANLEY SMITH BARNEY LLC FOR
EXCLUSIVE BENEFIT OF CUSTOMERS 1 NEW
YORK PLAZA FL. 12 NEW
YORK NY 10004-1932 |
11.36% |
RECORD |
DISCIPLINED
VALUE MID CAP |
C |
WELLS
FARGO CLEARING SERVICES, LLC SPECIAL
CUSTODY ACCT FOR THE EXCLUSIVE
BENEFIT OF CUSTOMER 2801
MARKET ST SAINT
LOUIS MO 63103-2523 |
11.79% |
RECORD |
DISCIPLINED
VALUE MID CAP |
C |
PERSHING
LLC 1
PERSHING PLZ JERSEY
CITY NJ 07399-0001 |
15.75% |
RECORD |
GLOBAL
SHAREHOLDER YIELD |
C |
AMERICAN
ENTERPRISE INVESTMENT SVC FBO
CUSTOMERS 707
2ND AVE S MINNEAP
OLIS MN 55402-2405 |
5.22% |
RECORD |
GLOBAL
SHAREHOLDER YIELD |
C |
LPL
FINANCIAL OMNIBUS
CUSTOMER ACCOUNT ATTN:
MUTUAL FUND TRADING 4707
EXECUTIVE DRIVE SAN
DIEGO CA 92121-3091 |
6.89% |
RECORD |
GLOBAL
SHAREHOLDER YIELD |
C |
NATIONAL
FINANCIAL SERVICES LLC FEBO
CUSTOMERS MUTUAL
FUNDS 200
LIBERTY ST # 1WFC NEW
YORK NY 10281-1015 |
8.08% |
RECORD |
GLOBAL
SHAREHOLDER YIELD |
C |
RAYMOND
JAMES OMNIBUS
FOR MUTUAL FUNDS HOUSE
ACCT FIRM 880
CARILLON PKWY ST
PETERSBURG FL 33716-1100 |
10.06% |
RECORD |
GLOBAL
SHAREHOLDER YIELD |
C |
PERSHING
LLC 1
PERSHING PLZ JERSEY
CITY NJ 07399-0001 |
12.18% |
RECORD |
GLOBAL
SHAREHOLDER YIELD |
C |
EDWARD
D JONES & CO FOR
THE BENEFIT OF CUSTOMERS 12555
MANCHESTER ROAD SAINT
LOUIS MO 63131-3710
|
15.41% |
RECORD |
GLOBAL
SHAREHOLDER YIELD |
C |
WELLS
FARGO CLEARING SERVICES, LLC SPECIAL
CUSTODY ACCT FOR THE EXCLUSIVE
BENEFIT OF CUSTOMER 2801
MARKET ST SAINT
LOUIS MO 63103-2523 |
21.05% |
RECORD |
|
|
|
|
|
JH
Fund Name |
Share
Class |
Name
and Address |
Percentage
Owned |
Type
of Ownership |
INTERNATIONAL
GROWTH |
C |
MLPF&
S FOR THE SOLE
BENEFIT OF ITS CUSTOMERS ATTN:
FUND ADMINISTRATION 4800
DEER LAKE DRIVE EAST 2ND FL JACKSONVILLE
FL 32246-6484 |
5.27% |
RECORD |
INTERNATIONAL
GROWTH |
C |
LPL
FINANCIAL OMNIBUS
CUSTOMER ACCOUNT ATTN:
MUTUAL FUND TRADING 4707
EXECUTIVE DRIVE SAN
DIEGO CA 92121-3091 |
5.50% |
RECORD |
INTERNATIONAL
GROWTH |
C |
PERSHING
LLC 1
PERSHING PLZ JERSEY
CITY NJ 07399-0001 |
5.65% |
RECORD |
INTERNATIONAL
GROWTH |
C |
NATIONAL
FINANCIAL SERVICES LLC FEBO
CUSTOMERS MUTUAL
FUNDS 200
LIBERTY ST # 1WFC NEW
YORK NY 10281-1015 |
6.55% |
RECORD |
INTERNATIONAL
GROWTH |
C |
RAYMOND
JAMES OMNIBUS
FOR MUTUAL FUNDS HOUSE
ACCT FIRM 880
CARILLON PKWY ST
PETERSBURG FL 33716-1100 |
9.80% |
RECORD |
INTERNATIONAL
GROWTH |
C |
WELLS
FARGO CLEARING SERVICES, LLC SPECIAL
CUSTODY ACCT FOR THE EXCLUSIVE
BENEFIT OF CUSTOMER 2801
MARKET ST SAINT
LOUIS MO 63103-2523 |
12.05% |
RECORD |
INTERNATIONAL
GROWTH |
C |
AMERICAN
ENTERPRISE INVESTMENT SVC FBO
CUSTOMERS 707
2ND AVE S MINNEAPOLIS
MN 55402-2405 |
15.59% |
RECORD |
INTERNATIONAL
GROWTH |
C |
MORGAN
STANLEY SMITH BARNEY LLC FOR
EXCLUSIVE BENEFIT OF CUSTOMERS 1 NEW
YORK PLAZA FL. 12 NEW
YORK NY 10004-1932 |
19.20% |
RECORD |
MID
CAP GROWTH |
C |
JOHN
HANCOCK LIFE & HEALTH INS CO CUSTODIAN
FOR THE IRA OF SHAGAVIA
YONNE WILLIAMS 1233
SHYREFORD CIR LAWRENCEVILLE
GA 30043-4475 |
7.18% |
BENEFICIAL |
MID
CAP GROWTH |
C |
AMERICAN
ENTERPRISE INVESTMENT SVC FBO
CUSTOMERS 707
2ND AVE S MINNEAPOLIS
MN 55402-2405 |
19.17% |
RECORD |
MID
CAP GROWTH |
C |
MANULIFE
REINSURANCE (BERMUDA) LTD 200
BERKELEY ST BOSTON
MA 02116-5022 |
73.65% |
RECORD |
|
|
|
|
|
JH
Fund Name |
Share
Class |
Name
and Address |
Percentage
Owned |
Type
of Ownership |
MONEY
MARKET |
C |
WELLS
FARGO CLEARING SERVICES, LLC SPECIAL
CUSTODY ACCT FOR THE EXCLUSIVE
BENEFIT OF CUSTOMER 2801
MARKET ST SAINT
LOUIS MO 63103-2523 |
5.26% |
RECORD |
MONEY
MARKET |
C |
ASCENSUS
TRUST COMPANY FBO FRANCIS
JAYAKUMAR PO
BOX 10758 FARGO
ND 58106-0758 |
6.19% |
BENEFICIAL |
MONEY
MARKET |
C |
NATIONAL
FINANCIAL SERVICES LLC FEBO
CUSTOMERS MUTUAL
FUNDS 200
LIBERTY ST # 1WFC NEW
YORK NY 10281-1015 |
34.99% |
RECORD |
U.S.
GROWTH |
C |
WELLS
FARGO CLEARING SERVICES, LLC SPECIAL
CUSTODY ACCT FOR THE EXCLUSIVE
BENEFIT OF CUSTOMER 2801
MARKET ST SAINT
LOUIS MO 63103-2523 |
5.54% |
RECORD |
U.S.
GROWTH |
C |
RAYMOND
JAMES OMNIBUS
FOR MUTUAL FUNDS HOUSE
ACCT FIRM 880
CARILLON PKWY ST
PETERSBURG FL 33716-1100 |
10.48% |
RECORD |
U.S.
GROWTH |
C |
AMERICAN
ENTERPRISE INVESTMENT SVC FBO
CUSTOMERS 707
2ND AVE S MINNEAPOLIS
MN 55402-2405 |
12.65% |
RECORD |
U.S.
GROWTH |
C |
NATIONAL
FINANCIAL SERVICES LLC FEBO
CUSTOMERS MUTUAL
FUNDS 200
LIBERTY ST # 1WFC NEW
YORK NY 10281-1015 |
12.83% |
RECORD |
U.S.
GROWTH |
C |
PERSHING
LLC 1
PERSHING PLZ JERSEY
CITY NJ 07399-0001 |
23.20% |
RECORD |
DISCIPLINED
VALUE |
I |
CHARLES
SCHWAB & CO INC SPECIAL
CUSTODY ACCT FBO CUSTOMERS ATTN
MUTUAL FUNDS 101
MONTGOMERY ST SAN
FRANCISCO CA 94104-4151 |
5.50% |
RECORD |
DISCIPLINED
VALUE |
I |
AMERICAN
ENTERPRISE INVESTMENT SVC FBO
CUSTOMERS 707
2ND AVE S MINNEAPOLIS
MN 55402-2405 |
6.79% |
RECORD |
DISCIPLINED
VALUE |
I |
PERSHING
LLC 1
PERSHING PLZ JERSEY
CITY NJ 07399-0001 |
6.96% |
RECORD |
DISCIPLINED
VALUE |
I |
LPL
FINANCIAL OMNIBUS
CUSTOMER ACCOUNT ATTN:
MUTUAL FUND TRADING 4707
EXECUTIVE DRIVE SAN
DIEGO CA 92121-3091 |
12.48% |
RECORD |
|
|
|
|
|
JH
Fund Name |
Share
Class |
Name
and Address |
Percentage
Owned |
Type
of Ownership |
DISCIPLINED
VALUE |
I |
MLPF&
S FOR THE SOLE
BENEFIT OF ITS CUSTOMERS ATTN:
FUND ADMINISTRATION 97C55 4800
DEER LAKE DRIVE EAST 2ND FL JACKSONVILLE
FL 32246-6484 |
17.49% |
RECORD |
DISCIPLINED
VALUE |
I |
NATIONAL
FINANCIAL SERVICES LLC FEBO
CUSTOMERS MUTUAL
FUNDS 200
LIBERTY ST # 1WFC NEW
YORK NY 10281-1015 |
31.67% |
RECORD |
DISCIPLINED
VALUE MID CAP |
I |
MLPF&S
INC FOR
THE BENEFIT OF OUR CUSTOMERS 4800
DEER LAKE DR E JACKSONVILLE
FL 32246-6486 |
6.85% |
RECORD |
DISCIPLINED
VALUE MID CAP |
I |
PERSHING
LLC 1
PERSHING PLZ JERSEY
CITY NJ 07399-0001 |
10.90% |
RECORD |
DISCIPLINED
VALUE MID CAP |
I |
NATIONAL
FINANCIAL SERVICES LLC FEBO
CUSTOMERS MUTUAL
FUNDS 200
LIBERTY ST # 1WFC NEW
YORK NY 10281-1015 |
14.68% |
RECORD |
DISCIPLINED
VALUE MID CAP |
I |
WELLS
FARGO CLEARING SERVICES, LLC SPECIAL
CUSTODY ACCT FOR THE EXCLUSIVE
BENEFIT OF CUSTOMER 2801
MARKET ST SAINT
LOUIS MO 63103-2523 |
14.78% |
RECORD |
DISCIPLINED
VALUE MID CAP |
I |
LPL
FINANCIAL OMNIBUS
CUSTOMER ACCOUNT ATTN:
MUTUAL FUND TRADING 4707
EXECUTIVE DRIVE SAN
DIEGO CA 92121-3091 |
26.26% |
RECORD |
FUNDAMENTAL
EQUITY INCOME |
I |
MANULIFE
REINSURANCE (BERMUDA) LTD 200
BERKELEY ST BOSTON
MA 02116-5022 |
100.00% |
RECORD |
GLOBAL
SHAREHOLDER YIELD |
I |
AMERICAN
ENTERPRISE INVESTMENT SVC FBO
CUSTOMERS 707
2ND AVE S MINNEAPOLIS
MN 55402-2405 |
5.15% |
RECORD |
GLOBAL
SHAREHOLDER YIELD |
I |
NATIONAL
FINANCIAL SERVICES LLC FEBO
CUSTOMERS MUTUAL
FUNDS 200
LIBERTY ST # 1WFC NEW
YORK NY 10281-1015 |
6.28% |
RECORD |
GLOBAL
SHAREHOLDER YIELD |
I |
WELLS
FARGO CLEARING SERVICES, LLC SPECIAL
CUSTODY ACCT FOR THE EXCLUSIVE
BENEFIT OF CUSTOMER 2801
MARKET ST SAINT
LOUIS MO 63103-2523 |
73.61% |
RECORD |
|
|
|
|
|
JH
Fund Name |
Share
Class |
Name
and Address |
Percentage
Owned |
Type
of Ownership |
INTERNATIONAL
GROWTH |
I |
LPL
FINANCIAL OMNIBUS
CUSTOMER ACCOUNT ATTN:
MUTUAL FUND TRADING 4707
EXECUTIVE DRIVE SAN
DIEGO CA 92121-3091 |
6.72% |
RECORD |
INTERNATIONAL
GROWTH |
I |
MLPF&
S FOR THE SOLE
BENEFIT OF ITS CUSTOMERS ATTN:
FUND ADMINISTRATION 97C55 4800
DEER LAKE DRIVE EAST 2ND FL JACKSONVILLE
FL 32246-6484 |
7.93% |
RECORD |
INTERNATIONAL
GROWTH |
I |
AMERICAN
ENTERPRISE INVESTMENT SVC FBO
CUSTOMERS 707
2ND AVE S MINNEAPOLIS
MN 55402-2405 |
8.81% |
RECORD |
INTERNATIONAL
GROWTH |
I |
RAYMOND
JAMES OMNIBUS
FOR MUTUAL FUNDS HOUSE
ACCT FIRM 880
CARILLON PKWY ST
PETERSBURG FL 33716-1100 |
8.89% |
RECORD |
INTERNATIONAL
GROWTH |
I |
NATIONAL
FINANCIAL SERVICES LLC FEBO
CUSTOMERS MUTUAL
FUNDS 200
LIBERTY ST # 1WFC NEW
YORK NY 10281-1015 |
15.72% |
RECORD |
INTERNATIONAL
GROWTH |
I |
MORGAN
STANLEY SMITH BARNEY LLC FOR
EXCLUSIVE BENEFIT OF CUSTOMERS 1 NEW
YORK PLAZA FL. 12 NEW
YORK NY 10004-1932 |
24.70% |
RECORD |
MID
CAP GROWTH |
I |
LPL
FINANCIAL OMNIBUS
CUSTOMER ACCOUNT ATTN:
MUTUAL FUND TRADING 4707
EXECUTIVE DRIVE SAN
DIEGO CA 92121-3091 |
35.79% |
RECORD |
MID
CAP GROWTH |
I |
NATIONAL
FINANCIAL SERVICES LLC FEBO
CUSTOMERS MUTUAL
FUNDS 200
LIBERTY ST # 1WFC NEW
YORK NY 10281-1015 |
61.53% |
RECORD |
U.S.
GROWTH |
I |
CHARLES
SCHWAB & CO INC MUTUAL
FUNDS DEPT 101
MONTGOMERY ST SAN
FRANCISCO CA 94104-4151 |
8.87% |
RECORD |
U.S.
GROWTH |
I |
LPL
FINANCIAL OMNIBUS
CUSTOMER ACCOUNT ATTN:
MUTUAL FUND TRADING 4707
EXECUTIVE DRIVE SAN
DIEGO CA 92121-3091 |
14.43% |
RECORD |
U.S.
GROWTH |
I |
PERSHING
LLC 1
PERSHING PLZ JERSEY
CITY NJ 07399-0001 |
17.40% |
RECORD |
|
|
|
|
|
JH
Fund Name |
Share
Class |
Name
and Address |
Percentage
Owned |
Type
of Ownership |
U.S.
GROWTH |
I |
NATIONAL
FINANCIAL SERVICES LLC FEBO
CUSTOMERS MUTUAL
FUNDS 200
LIBERTY ST # 1WFC NEW
YORK NY 10281-1015 |
22.62% |
RECORD |
U.S.
GROWTH |
I |
AMERICAN
ENTERPRISE INVESTMENT SVC FBO
CUSTOMERS 707
2ND AVE S MINNEAPOLIS
MN 55402-2405 |
22.74% |
RECORD |
DISCIPLINED
VALUE |
R2 |
SAMMONS
FINANCIAL NETWORK LLC 4546
CORPORATE DR STE 100 WDM
IA 50266-5911 |
6.94% |
BENEFICIAL |
DISCIPLINED
VALUE |
R2 |
NATIONAL
FINANCIAL SERVICES LLC 499
WASHINGTON BLVD JERSEY
CITY NJ 07310-1995 |
8.64% |
RECORD |
DISCIPLINED
VALUE |
R2 |
DCGT
AS TTEE AND/OR CUST FBO
PLIC VARIOUS RETIREMENT PLANS OMNIBUS ATTN
NPIO TRADE DESK 711
HIGH ST DES
MOINES IA 50392-0001 |
11.15% |
RECORD |
DISCIPLINED
VALUE |
R2 |
JOHN
HANCOCK TRUST COMPANY 690
CANTON ST STE 100 WESTWOOD
MA 02090-2324 |
14.96% |
RECORD |
DISCIPLINED
VALUE |
R2 |
MLPF&
S FOR THE SOLE
BENEFIT OF ITS CUSTOMERS ATTN:
FUND ADMINISTRATION 4800
DEER LAKE DRIVE EAST 2ND FL JACKSONVILLE
FL 32246-6484 |
15.20% |
RECORD |
DISCIPLINED
VALUE MID CAP |
R2 |
JOHN
HANCOCK TRUST COMPANY 690
CANTON ST STE 100 WESTWOOD
MA 02090-2324 |
5.10% |
RECORD |
DISCIPLINED
VALUE MID CAP |
R2 |
PIMS/PRUDENTIAL
RETIREMENT AS
NOMINEE FOR THE TTEE/CUST PL 010 UNIV
OF MARYLAND MEDICAL SYSTEM ATTN
HR/RETIREMENT BENEFITS DEPT 920
ELKRIDGE LANDING RD FL 1ST LINTHICUM
MD 21090-2917 |
5.32% |
BENEFICIAL |
DISCIPLINED
VALUE MID CAP |
R2 |
PIMS/PRUDENTIAL
RETIREMENT AS
NOMINEE FOR THE TTEE/CUST PL 008 UMMS
401(A) DEFINED 920
ELKRIDGE LANDING ROAD 1ST
FLOOR LINTHICUM
MD 21090-2917 |
8.47% |
BENEFICIAL |
DISCIPLINED
VALUE MID CAP |
R2 |
MLPF&
S FOR THE SOLE
BENEFIT OF ITS CUSTOMERS ATTN:
FUND ADMINISTRATION 4800
DEER LAKE DRIVE EAST 2ND FL JACKSONVILLE
FL 32246-6484 |
9.11% |
RECORD |
|
|
|
|
|
JH
Fund Name |
Share
Class |
Name
and Address |
Percentage
Owned |
Type
of Ownership |
DISCIPLINED
VALUE MID CAP |
R2 |
PIMS/PRUDENTIAL
RETIREMENT AS
NOMINEE FOR THE TTEE/CUST PL 008 UMMS
VOLUNTARY 403(B) PLAN 920
ELKRIDGE LANDING ROAD 1ST
FLOOR LINTHICUM
MD 21090-2917 |
16.34% |
BENEFICIAL |
GLOBAL
SHAREHOLDER YIELD |
R2 |
NATIONAL
FINANCIAL SERVICES LLC 499
WASHINGTON BLVD JERSEY
CITY NJ 07310-1995 |
5.98% |
RECORD |
GLOBAL
SHAREHOLDER YIELD |
R2 |
MATRIX
TRUST COMPANY CUST FBO MULVANE
SCHOOL DIST USD 263 403(B) 717
17TH ST STE 1300 DENVER
CO 80202-3304 |
6.14% |
BENEFICIAL |
GLOBAL
SHAREHOLDER YIELD |
R2 |
RICHARD
MANGANIELLO & TRINA
MANGANIELLO TTEES CONNECTICUT
EYE PHYSICIANS AND SURGEONS
LLC CASH BALANCE PLAN 479
BUCKLAND ROAD SOUTH
WINDSOR CT 06074-3739
|
8.84% |
BENEFICIAL |
GLOBAL
SHAREHOLDER YIELD |
R2 |
MID
ATLANTIC TRUST COMPANY FBO WILKINSON
MANUFACTURING INC 401(K)
PROFIT SHARING PLAN & TRUST 1251
WATERFRONT PLACE, SUITE 525 PITTSBURGH
PA 15222-4228 |
13.37% |
BENEFICIAL |
INTERNATIONAL
GROWTH |
R2 |
NATIONAL
FINANCIAL SERVICES LLC 499
WASHINGTON BLVD JERSEY
CITY NJ 07310-1995 |
6.69% |
RECORD |
INTERNATIONAL
GROWTH |
R2 |
MLPF&
S FOR THE SOLE
BENEFIT OF ITS CUSTOMERS ATTN:
FUND ADMINISTRATION 4800
DEER LAKE DRIVE EAST 2ND FL JACKSONVILLE
FL 32246-6484 |
8.75% |
RECORD |
INTERNATIONAL
GROWTH |
R2 |
DCGT
AS TTEE AND/OR CUST FBO
PLIC VARIOUS RETIREMENT PLANS ATTN
NPIO TRADE DESK OMNIBUS 711
HIGH ST DES
MOINES IA 50392-0001 |
15.99% |
RECORD |
INTERNATIONAL
GROWTH |
R2 |
MATRIX
TRUST COMPANY AS AGENT FOR ADVISOR
TRUST, INC. KADES-MARGOLIS
IRA MBD 717
17TH ST STE 1300 DENVER
CO 80202-3304 |
19.33% |
BENEFICIAL |
INTERNATIONAL
GROWTH |
R2 |
MATRIX
TRUST COMPANY CUST FBO KADES-MARGOLIS
403B MBD 717
17TH ST STE 1300 DENVER
CO 80202-3304 |
35.05% |
BENEFICIAL |
|
|
|
|
|
JH
Fund Name |
Share
Class |
Name
and Address |
Percentage
Owned |
Type
of Ownership |
U.S.
GROWTH |
R2 |
MG
TRUST COMPANY CUST FBO BRONSON
COMMUNITY SCHOOLS 403 B 717
17TH ST STE 1300 DENVER
CO 80202-3304 |
5.25% |
BENEFICIAL |
U.S.
GROWTH |
R2 |
MATRIX
TRUST COMPANY AS AGENT FOR ADVISOR
TRUST, INC VERNON
COLLEGE 403(B) PLAN 717
17TH ST STE 1300 DENVER
CO 80202-3304 |
6.30% |
BENEFICIAL |
U.S.
GROWTH |
R2 |
ASCENSUS
TRUST COMPANY FBO VERONICA
S GLASS JEWELRY RETIREMENT PO
BOX 10758 FARGO
ND 58106-0758 |
7.54% |
BENEFICIAL |
U.S.
GROWTH |
R2 |
ASCENSUS
TRUST COMPANY FBO MURPHY
CONSULTING RETIREMENT PLAN PO
BOX 10758 FARGO
ND 58106-0758 |
10.13% |
BENEFICIAL |
U.S.
GROWTH |
R2 |
ASCENSUS
TRUST COMPANY FBO ILGENFRITZ
CONSULTING LLC RETIREMEN PO
BOX 10758 FARGO
ND 58106-0758 |
11.64% |
BENEFICIAL |
U.S.
GROWTH |
R2 |
LPL
FINANCIAL OMNIBUS
CUSTOMER ACCOUNT ATTN:
MUTUAL FUND TRADING 4707
EXECUTIVE DRIVE SAN
DIEGO CA 92121-3091 |
15.83% |
RECORD |
U.S.
GROWTH |
R2 |
ASCENSUS
TRUST COMPANY FBO INLAND
PAPER COMPANY 401 K PLAN PO
BOX 10758 FARGO
ND 58106-0758 |
16.88% |
BENEFICIAL |
DISCIPLINED
VALUE |
R4 |
RELIANCE
TRUST COMPANY FBO MASSMUTUAL
REGISTERED PRODUCT PO
BOX 28004 ATLANTA
GA 30358-0004 |
6.56% |
RECORD |
DISCIPLINED
VALUE |
R4 |
NATIONAL
FINANCIAL SERVICES LLC 499
WASHINGTON BLVD JERSEY
CITY NJ 07310-1995 |
16.23% |
RECORD |
DISCIPLINED
VALUE |
R4 |
ING
NATIONAL TRUST GORDON
ELROD 1
ORANGE WAY WINDSOR
CT 06095-4773 |
23.07% |
BENEFICIAL |
DISCIPLINED
VALUE |
R4 |
TIAA
FSB CUST/TTEE FBO RETIREMENT
PLANS FOR WHICH TIAA
ACTS AS RECORDKEEPER ATTN
TRUST OPERATIONS 211 N
BROADWAY STE 1000 SAINT
LOUIS MO 63102-2748 |
31.19% |
RECORD |
|
|
|
|
|
JH
Fund Name |
Share
Class |
Name
and Address |
Percentage
Owned |
Type
of Ownership |
DISCIPLINED
VALUE MID CAP |
R4 |
GREAT-WEST
TRUST COMPANY LLC FBO EMPLOYEE
BENEFITS CLIENTS 401K 8515
E ORCHARD RD 2T2 GREENWOOD
VILLAGE CO 80111-5002 |
5.05% |
RECORD |
DISCIPLINED
VALUE MID CAP |
R4 |
CHARLES
SCHWAB & CO INC SPECIAL
CUSTODY ACCOUNT FOR BENE
OF CUST ATTN
MUTUAL FUNDS 101
MONTGOMERY ST SAN
FRANCISCO CA 94104-4151 |
6.48% |
RECORD |
DISCIPLINED
VALUE MID CAP |
R4 |
NATIONAL
FINANCIAL SERVICES LLC 499
WASHINGTON BLVD JERSEY
CITY NJ 07310-1995 |
17.04% |
RECORD |
DISCIPLINED
VALUE MID CAP |
R4 |
LINCOLN
RETIREMENT SERVICES COMPANY FBO
PRINCE WILLIAM 403B PO
BOX 7876 FORT
WAYNE IN 46801-7876 |
32.52% |
BENEFICIAL |
INTERNATIONAL
GROWTH |
R4 |
GREAT-WEST
TRUST COMPANY LLC FBO EMPLOYEE
BENEFITS CLIENTS 401K 8515
E ORCHARD RD 2T2 GREENWOOD
VILLAGE CO 80111-5002 |
7.54% |
RECORD |
INTERNATIONAL
GROWTH |
R4 |
JOHN
HANCOCK TRUST COMPANY LLC 690
CANTON ST STE 100 WESTWOOD
MA 02090-2324 |
18.78% |
RECORD |
INTERNATIONAL
GROWTH |
R4 |
DCGT
AS TTEE AND/OR CUST FBO
PLIC VARIOUS RETIREMENT PLANS ATTN
NPIO TRADE DESK OMNIBUS 711
HIGH ST DES
MOINES IA 50392-0001 |
27.85% |
RECORD |
INTERNATIONAL
GROWTH |
R4 |
RELIANCE
TRUST CO TTEE ADP
ACCESS LARGE MARKET 401K 201
17TH ST NW STE 1000 ATLANTA
GA 30363-1195 |
33.46% |
RECORD |
U.S.
GROWTH |
R4 |
MG
TRUST COMPANY CUST FBO NORTON
COMM SCH USD #211 403 B 717
17TH ST STE 1300 DENVER
CO 80202-3304 |
100.00% |
BENEFICIAL |
DISCIPLINED
VALUE |
R5 |
STATE
STREET BANK AND TRUST AS TRUSTEE
AND OR CUSTODIAN FBO ADP ACCESS
PRODUCT 1
LINCOLN ST BOSTON
MA 02111-2901 |
5.37% |
RECORD |
|
|
|
|
|
JH
Fund Name |
Share
Class |
Name
and Address |
Percentage
Owned |
Type
of Ownership |
DISCIPLINED
VALUE |
R5 |
CHARLES
SCHWAB & CO INC MUTUAL
FUNDS DEPT 101
MONTGOMERY ST SAN
FRANCISCO CA 94104-4151 |
13.91% |
RECORD |
DISCIPLINED
VALUE |
R5 |
DCGT
AS TTEE AND/OR CUST FBO
PLIC VARIOUS RETIREMENT PLANS OMNIBUS ATTN
NPIO TRADE DESK 711
HIGH ST DES
MOINES IA 50392-0001 |
16.18% |
RECORD |
DISCIPLINED
VALUE |
R5 |
TIAA
FSB CUST/TTEE FBO RETIREMENT
PLANS FOR WHICH TIAA
ACTS AS RECORDKEEPER ATTN
TRUST OPERATIONS 211 N
BROADWAY STE 1000 SAINT
LOUIS MO 63102-2748 |
24.39% |
RECORD |
DISCIPLINED
VALUE |
R5 |
MINNESOTA
LIFE INSURANCE COMPANY 400
ROBERT ST N STE A SAINT
PAUL MN 55101-2099 |
29.50% |
BENEFICIAL |
DISCIPLINED
VALUE |
R6 |
TIAA
FSB CUST/TTEE FBO RETIREMENT
PLANS FOR WHICH TIAA
ACTS AS RECORDKEEPER ATTN
TRUST OPERATIONS 211 N
BROADWAY STE 1000 SAINT
LOUIS MO 63102-2748 |
10.58% |
RECORD |
DISCIPLINED
VALUE |
R6 |
JOHN
HANCOCK LIFE INSURANCE COMPANY
(USA) ATTN:
JHRPS TRADING OPS ST6 200
BERKELEY ST BOSTON
MA 02116-5022 |
13.73% |
RECORD |
DISCIPLINED
VALUE |
R6 |
EDWARD
D JONES & CO FOR
THE BENEFIT OF CUSTOMERS 12555
MANCHESTER ROAD SAINT
LOUIS MO 63131-3710 |
19.57% |
RECORD |
DISCIPLINED
VALUE |
R6 |
NATIONAL
FINANCIAL SERVICES LLC 499
WASHINGTON BLVD JERSEY
CITY NJ 07310-1995 |
22.46% |
RECORD |
DISCIPLINED
VALUE MID CAP |
R6 |
CHARLES
SCHWAB & CO INC MUTUAL
FUNDS DEPT 101
MONTGOMERY ST SAN
FRANCISCO CA 94104-4151 |
6.53% |
RECORD |
DISCIPLINED
VALUE MID CAP |
R6 |
NATIONAL
FINANCIAL SERVICES LLC 499
WASHINGTON BLVD JERSEY
CITY NJ 07310-1995 |
19.59% |
RECORD |
|
|
|
|
|
JH
Fund Name |
Share
Class |
Name
and Address |
Percentage
Owned |
Type
of Ownership |
DISCIPLINED
VALUE MID CAP |
R6 |
EDWARD
D JONES & CO FOR
THE BENEFIT OF CUSTOMERS 12555
MANCHESTER ROAD SAINT
LOUIS MO 63131-3710 |
21.74% |
RECORD |
GLOBAL
SHAREHOLDER YIELD |
R6 |
EDWARD
D JONES & CO FOR
THE BENEFIT OF CUSTOMERS 12555
MANCHESTER ROAD SAINT
LOUIS MO 63131-3710 |
95.76% |
RECORD |
INTERNATIONAL
GROWTH |
R6 |
EDWARD
D JONES & CO FOR
THE BENEFIT OF CUSTOMERS 12555
MANCHESTER ROAD SAINT
LOUIS MO 63131-3710 |
67.55% |
RECORD |
MID
CAP GROWTH |
R6 |
JOHN
HANCOCK LIFE INSURANCE COMPANY
OF NEW YORK ATTN:
JHRPS TRADING OPS ST 6 200
BERKELEY ST BOSTON
MA 02116-5022 |
6.09% |
RECORD |
MID
CAP GROWTH |
R6 |
JOHN
HANCOCK LIFE INSURANCE COMPANY
(USA) ATTN:
JHRPS TRADING OPS ST6 200
BERKELEY ST BOSTON
MA 02116-5022 |
93.91% |
RECORD |
U.S.
GROWTH |
R6 |
EDWARD
D JONES & CO FOR
THE BENEFIT OF CUSTOMERS 12555
MANCHESTER ROAD SAINT
LOUIS MO 63131-3710 |
41.55% |
RECORD |
U.S.
GROWTH |
R6 |
JOHN
HANCOCK LIFE INSURANCE COMPANY
(USA) ATTN:
JHRPS TRADING OPS ST6 200
BERKELEY ST BOSTON
MA 02116-5022 |
52.00% |
RECORD |
DISCIPLINED
VALUE |
NAV |
JHF
II Multimanager Lifestyle Balanced Portfolio 200
BERKLEY STREET BOSTON
MA 02116-5030 |
18.14% |
BENEFICIAL |
DISCIPLINED
VALUE |
NAV |
JHF
II Multimanager Lifestyle Growth Portfolio 200
BERKLEY STREET BOSTON
MA 02116-5030 |
30.36% |
BENEFICIAL |
DISCIPLINED
VALUE |
NAV |
JHF
II Multimanager Lifestyle Aggressive Portfolio 200
BERKLEY STREET BOSTON
MA 02116-5030 |
13.08% |
BENEFICIAL |
DIVERSIFIED
REAL ASSETS |
NAV |
JHF
II Multimanager 2025 Lifetime Portfolio 200
BERKLEY STREET BOSTON
MA 02116-5030 |
6.97% |
BENEFICIAL |
|
|
|
|
|
JH
Fund Name |
Share
Class |
Name
and Address |
Percentage
Owned |
Type
of Ownership |
DIVERSIFIED
REAL ASSETS |
NAV |
JHF
II Multimanager 2030 Lifetime Portfolio 200
BERKLEY STREET BOSTON
MA 02116-5030 |
5.95% |
BENEFICIAL |
DIVERSIFIED
REAL ASSETS |
NAV |
JHF
II Multimanager Lifestyle Balanced Portfolio 200
BERKLEY STREET BOSTON
MA 02116-5030 |
22.42% |
BENEFICIAL |
DIVERSIFIED
REAL ASSETS |
NAV |
JHF
II Multimanager Lifestyle Growth Portfolio 200
BERKLEY STREET BOSTON
MA 02116-5030 |
32.93% |
BENEFICIAL |
DIVERSIFIED
REAL ASSETS |
NAV |
JHF
II Multimanager Lifestyle Aggressive Portfolio 200
BERKLEY STREET BOSTON
MA 02116-5030 |
14.64% |
BENEFICIAL |
GLOBAL
SHAREHOLDER YIELD |
NAV |
-JHF
II Multimanager Lifestyle Conservative Portfolio 200
BERKLEY STREET BOSTON
MA 02116-5030 |
13.68% |
BENEFICIAL |
GLOBAL
SHAREHOLDER YIELD |
NAV |
JHF
II Multimanager Lifestyle Moderate Portfolio 200
BERKLEY STREET BOSTON
MA 02116-5030 |
31.93% |
BENEFICIAL |
GLOBAL
SHAREHOLDER YIELD |
NAV |
JHF
II Multimanager Lifestyle Balanced Portfolio 200
BERKLEY STREET BOSTON
MA 02116-5030 |
44.95% |
BENEFICIAL |
GLOBAL
SHAREHOLDER YIELD |
NAV |
JHF
II Multimanager 2020 Lifetime Portfolio 200
BERKLEY STREET BOSTON
MA 02116-5030 |
5.16% |
BENEFICIAL |
INTERNATIONAL
GROWTH |
NAV |
JHF
II Multimanager Lifestyle Moderate Portfolio 200
BERKLEY STREET BOSTON
MA 02116-5030 |
5.45% |
BENEFICIAL |
INTERNATIONAL
GROWTH |
NAV |
JHF
II Multimanager Lifestyle Balanced Portfolio 200
BERKLEY STREET BOSTON
MA 02116-5030 |
18.45% |
BENEFICIAL |
INTERNATIONAL
GROWTH |
NAV |
JHF
II Multimanager Lifestyle Growth Portfolio 200
BERKLEY STREET BOSTON
MA 02116-5030 |
23.51% |
BENEFICIAL |
INTERNATIONAL
GROWTH |
NAV |
JHF
II Multimanager Lifestyle Aggressive Portfolio 200
BERKLEY STREET BOSTON
MA 02116-5030 |
11.52% |
BENEFICIAL |
INTERNATIONAL
GROWTH |
NAV |
T
ROWE PRICE SERVICES INC ALASKA
COLLEGE SAVINGS TRUST PORTFOLIO
100 E
PRATT ST FL 7 BALTIMORE
MD 21202-1013 |
6.00% |
BENEFICIAL |
|
|
|
|
|
JH
Fund Name |
Share
Class |
Name
and Address |
Percentage
Owned |
Type
of Ownership |
INTERNATIONAL
GROWTH |
NAV |
T
ROWE PRICE SERVICES INC ALASKA
COLLEGE SAVINGS TRUST PORTFOLIO
100 E
PRATT ST FL 7 BALTIMORE
MD 21202-1013 |
7.00% |
BENEFICIAL |
MID
CAP GROWTH |
NAV |
JHF
II Multimanager Lifestyle Balanced Portfolio 200
BERKLEY STREET BOSTON
MA 02116-5030 |
22.25% |
BENEFICIAL |
MID
CAP GROWTH |
NAV |
JHF
II Multimanager Lifestyle Growth Portfolio 200
BERKLEY STREET BOSTON
MA 02116-5030 |
32.75% |
BENEFICIAL |
MID
CAP GROWTH |
NAV |
JHF
II Multimanager Lifestyle Aggressive Portfolio 200
BERKLEY STREET BOSTON
MA 02116-5030 |
14.02% |
BENEFICIAL |
U.S.
GROWTH FUND |
NAV |
JOHN
HANCOCK LIFE INSURANCE COMPANY (U.S.A.) 201
TOWNSEND STREET, SUITE 900 LANSING
MI 48933 |
100% |
BENEFICIAL |
INTERNATIONAL
GROWTH |
1 |
JOHN
HANCOCK LIFE INSURANCE COMPANY OF NEW
YORK 100
SUMMIT LAKE DRIVE, SECOND FLOOR VALHALLA
NY 10595 |
6.01% |
BENEFICIAL |
INTERNATIONAL
GROWTH |
1 |
JOHN
HANCOCK LIFE INSURANCE COMPANY (U.S.A.) 201
TOWNSEND STREET, SUITE 900 LANSING
MI 48933 |
93.99% |
BENEFICIAL |
INVESTMENT
MANAGEMENT ARRANGEMENTS AND OTHER SERVICES
Advisory
Agreement
The Advisor
serves as investment advisor to the funds and is responsible for the supervision
of the subadvisor services to the funds pursuant to the Advisory
Agreement. Pursuant to the Advisory Agreement and subject to general oversight
by the Board, the Advisor manages and supervises the investment
operations and business affairs of the funds. The Advisor provides the funds
with all necessary office facilities and equipment and any personnel
necessary for the oversight and/or conduct of the investment operations of the
funds. The Advisor also coordinates and oversees the services
provided to the funds under other agreements, including custodial,
administrative and transfer agency services. Additionally, the Advisor
provides
certain administrative and other non-advisory services to the funds pursuant to
a separate Service Agreement, as discussed below.
The Advisor
is responsible for overseeing and implementing a fund’s investment program and
provides a variety of advisory oversight and investment research
services, including: (i) monitoring fund portfolio compositions and risk
profiles and (ii) evaluating fund investment characteristics, such as
investment
strategies, and recommending to the Board potential enhancements to such
characteristics. The Advisor provides management and transition
services associated with certain fund events (e.g., strategy, portfolio manager
or subadvisor changes).
The Advisor
has the responsibility to oversee the subadvisors and recommend to the Board:
(i) the hiring, termination, and replacement of a subadvisor;
and (ii) the allocation and reallocation of a fund’s assets among multiple
subadvisors, when appropriate. In this capacity, the Advisor negotiates
with potential subadvisors and, once retained, among other things: (i) monitors
the compliance of the subadvisor with the investment objectives
and related policies of the funds; (ii) reviews the performance of the
subadvisor; and (iii) reports periodically on such performance to the
Board. The
Advisor utilizes the expertise of a team of investment professionals in manager
research and oversight who provide these research and monitoring
services.
The Advisor
is not liable for any error of judgment or mistake of law or for any loss
suffered by a fund in connection with the matters to which the Advisory
Agreement relates, except a loss resulting from willful misfeasance, bad faith
or gross negligence on the part of the Advisor in the performance
of its duties or from its reckless disregard of its obligations and duties under
the Advisory Agreement.
Under the
Advisory Agreement, a fund may use the name “John Hancock” or any name derived
from or similar to it only for so long as the Advisory Agreement
or any extension, renewal or amendment thereof remains in effect. If the
Advisory Agreement is no longer in effect, the fund (to the extent that it
lawfully can) will cease to use such name or any other name indicating that it
is advised by or otherwise connected with the Advisor. In addition, the Advisor
or JHLICO U.S.A., a subsidiary of Manulife Financial, may grant the nonexclusive
right to use the name “John Hancock” or any similar name to any
other corporation or entity, including but not limited to any investment company
of which the JHLICO U.S.A. or any subsidiary or affiliate thereof or any
successor to the business of any subsidiary or affiliate thereof shall be the
investment advisor.
The
continuation of the Advisory Agreement and the Distribution Agreement (discussed
below) were each approved by all Trustees. The Advisory Agreement
and the Distribution Agreement will continue in effect from year to year,
provided that each Agreement’s continuance is approved annually both: (i)
by the holders of a majority of the outstanding voting securities of the Trusts
or by the Trustees; and (ii) by a majority of the Trustees who are not parties
to the Agreement, or “interested persons” of any such parties. Each of these
Agreements may be terminated on 60 days’ written notice by any party
or by a vote of a majority of the outstanding voting securities of the funds and
will terminate automatically if assigned.
Each Trust
bears all costs of its organization and operation, including but not limited to
expenses of preparing, printing and mailing all shareholders’ reports,
notices, prospectuses, proxy statements and reports to regulatory agencies;
expenses relating to the issuance, registration and qualification of shares;
government fees; interest charges; expenses of furnishing to shareholders their
account statements; taxes; expenses of redeeming shares; brokerage
and other expenses connected with the execution of portfolio securities
transactions; expenses pursuant to a fund’s plan of distribution; fees and
expenses of custodians including those for keeping books and accounts
maintaining a committed line of credit and calculating the NAV of shares;
fees and expenses of transfer agents and dividend disbursing agents; legal,
accounting, financial, management, tax and auditing fees and expenses of
the funds (including an allocable portion of the cost of the Advisor’s employees
rendering such services to the funds); the compensation and
expenses of officers and Trustees (other than persons serving as President or
Trustee who are otherwise affiliated with the funds the Advisor or any of
their affiliates); expenses of Trustees’ and shareholders’ meetings; trade
association memberships; insurance premiums; and any extraordinary expenses.
Securities
held by a fund also may be held by other funds or investment advisory clients
for which the Advisor, the subadvisor or their respective affiliates
provide investment advice. Because of different investment objectives or other
factors, a particular security may be bought for one or more funds or
clients when one or more are selling the same security. If opportunities for
purchase or sale of securities by the Advisor or subadvisor for a fund or for
other funds or clients for which the Advisor or subadvisor renders investment
advice arise for consideration at or about the same time, transactions
in such securities will be made, insofar as feasible, for the respective fund,
funds or clients in a manner deemed equitable to all of them. To the
extent that transactions on behalf of more than one client of the Advisor or
subadvisor or their respective affiliates may increase the demand for
securities
being purchased or the supply of securities being sold, there may be an adverse
effect on price.
Advisor
Compensation. As
compensation for its advisory services under the Advisory Agreement, the Advisor
receives a fee from the funds, computed
separately for each fund. The fee for each fund is stated as an annual
percentage of the current value of the “aggregate net assets” of the
fund.
“Aggregate net assets” of a fund include the net assets of the fund and, in many
cases, the net assets of one or more other funds (or portions thereof)
advised by the Advisor, but in each case only for the period during which the
Advisor also serves as the advisor to the other fund(s) (or portions
thereof).
The fee for each fund is based on the applicable annual rate that, for each day,
is equal to: (i) the sum of the amounts determined by applying the annual
percentage rates for the fund to the applicable portions of aggregate net assets
divided by: (ii) aggregate net assets (totaling the “Applicable
Annual Fee Rate”). The fee for each fund accrues and is paid daily to the
Advisor for each calendar day. The daily fee accruals are computed by
multiplying the fraction of one over the number of calendar days in the year by
the Applicable Annual Fee Rate, and multiplying this product by
the net assets of the fund. The management fees that each fund currently is
obligated to pay the Advisor are as set forth in its Prospectus.
From time
to time, the Advisor may reduce its fee or make other arrangements to limit a
fund’s expenses to a specified percentage of average daily net assets. The
Advisor retains the right to re-impose a fee and recover any other payments to
the extent that, during the fiscal year in which such expense limitation
is in place, a fund’s annual expenses fall below this limit. The
following table shows the advisory fees that each fund incurred and paid to the
Advisor for
the fiscal periods ended March 31, 2022, March 31,
2021, and March
31, 2020.
|
|
|
|
|
Advisory
Fee Paid in Fiscal Year Ended March 31, |
Funds |
2022
($)1
|
2021
($)2
|
2020
($)3
|
Disciplined
Value Fund |
|
|
|
Gross
Fees |
81,241,268 |
79,338,621 |
95,928,949 |
Waivers |
(1,162,104) |
(893,888) |
(1,083,401) |
Net
Fees |
80,079,164 |
78,444,733 |
94,845,548 |
Disciplined
Value Mid Cap Fund |
|
|
|
Gross
Fees |
138,729,469 |
91,467,137 |
92,523,645 |
Waivers |
(1,781,451) |
(970,317) |
(963,849) |
Net
Fees |
136,948,018 |
90,496,820 |
91,559,796 |
Diversified
Real Assets Fund |
|
|
|
Gross
Fees |
9,890,539 |
6,976,898 |
8,120,785 |
|
|
|
|
|
Advisory
Fee Paid in Fiscal Year Ended March 31, |
Funds |
2022
($)1 |
2021
($)2 |
2020
($)3 |
Waivers |
(687,526) |
(471,922) |
(548,426) |
Net
Fees |
9,203,013 |
6,504,976 |
7,572,359 |
Fundamental
Equity Income4
|
|
|
|
Gross
Fees |
– |
– |
– |
Waivers |
– |
– |
– |
Net
Fees |
– |
– |
– |
Global
Shareholder Yield Fund |
|
|
|
Gross
Fees |
9,043,478 |
12,747,474 |
15,633,150 |
Waivers |
(1,746,969) |
(2,437,572) |
(2,934,528) |
Net
Fees |
7,296,509 |
10,309,902 |
12,698,622 |
International
Growth Fund |
|
|
|
Gross
Fees |
107,485,680 |
85,920,852 |
75,673,527 |
Waivers |
(1,213,051) |
(803,497) |
(692,400) |
Net
Fees |
106,272,629 |
85,117,355 |
74,981,127 |
Mid
Cap Growth |
|
|
|
Gross
Fees |
9,125,976 |
16,699,739 |
13,288,323 |
Waivers |
(688,630) |
(169,906) |
(113,492) |
Net
Fees |
8,437,346 |
16,529,833 |
13,174,831 |
Money
Market Fund |
|
|
|
Gross
Fees |
3,523,703 |
3,192,292 |
2,504,367 |
Waivers |
(3,523,703) |
(3,192,292) |
(49,868) |
Net
Fees |
0 |
0 |
2,454,499 |
U.S.
Growth Fund |
|
|
|
Gross
Fees |
7,531,999 |
7,069,141 |
5,251,115 |
Waivers |
(124,022) |
(95,219) |
(68,527) |
Net
Fees |
7,407,977 |
6,973,922 |
5,182,588 |
1 |
For
Mid Cap Growth Fund, fiscal period from September 1, 2021 to March 31,
2022. The fund commenced operations on October 18, 2021. The fiscal period
ended March
31, 2022 includes the historical operating results of the predecessor fund
for the period ended September 1 through October 15,
2021. |
2 |
For
Mid Cap Growth Fund, predecessor fund information for its fiscal year
ended August 31, 2021. |
3 |
For
Mid Cap Growth Fund, predecessor fund information for its fiscal year
ended August 31, 2020. |
4 |
The
fund commenced operations on June 24, 2022. |
Consulting
Services. The
Advisor has entered into an arrangement with Manulife IM (US) to provide
consulting services to the Advisor in connection with
Diversified Real Assets Fund’s strategic asset allocation among general
investment categories. Neither the Advisor nor the fund pays any compensation
to Manulife IM (US) for these services. Manulife IM (US) does not have
discretionary authority over fund assets and cannot determine which
securities the fund will purchase or sell.
Service
Agreement
Pursuant to
a Service
Agreement, the
Advisor is responsible for providing, at the expense of the applicable Trust or
Trusts, certain financial, accounting
and administrative services such as legal services, tax, accounting, valuation,
financial reporting and performance, compliance and service provider
oversight. Pursuant to the Service Agreement, the Advisor shall determine,
subject to Board approval, the expenses to be reimbursed by each fund,
including an overhead allocation. The payments under the Service Agreement are
not intended to provide a profit to the Advisor. Instead, the Advisor
provides the services under the Service Agreement because it also provides
advisory services under the Advisory Agreement. The
reimbursement
shall be calculated and paid monthly in arrears.
The Advisor
is not liable for any error of judgment or mistake of law or for any loss
suffered by a fund in connection with the matters to which the Service
Agreement relates, except losses resulting from willful misfeasance, bad faith
or negligence by the Advisor in the performance of its duties or from
reckless disregard by the Advisor of its obligations under the
Agreement.
The Service
Agreement had an initial term of two years, and continues thereafter so long as
such continuance is specifically approved at least annually by a
majority of the Board and a majority of the Independent Trustees. The Trust, on
behalf of any or all of the funds, or the Advisor may terminate the
Agreement
at any time without penalty on 60 days’ written notice to the other party. The
Agreement may be amended by mutual written agreement of the
parties, without obtaining shareholder approval.
The
following table shows the fees that each fund incurred and paid to the Advisor
for non-advisory services pursuant to the Service Agreement for the fiscal
periods ended March 31, 2022, March 31,
2021, and March
31, 2020.
|
|
|
|
|
Service
Fee Paid in Fiscal Year Ended March 31, |
Fund |
2022
($) |
2021
($) |
2020
($) |
Disciplined
Value Fund |
1,741,575 |
1,890,535 |
2,623,894 |
Disciplined
Value Mid Cap Fund |
2,682,665 |
2,054,900 |
2,353,497 |
Diversified
Real Assets Fund |
159,878 |
149,138 |
181,867 |
Fundamental
Equity Income1
|
– |
– |
– |
Global
Shareholder Yield Fund |
147,670 |
250,181 |
353,824 |
International
Growth Fund |
1,754,353 |
1,771,246 |
1,697,610 |
Mid
Cap Growth |
130,6522
|
289,2153
|
276,5604
|
Money
Market Fund |
137,868 |
166,738 |
128,905 |
U.S.
Growth Fund |
180,494 |
196,082 |
156,728 |
1 |
The
fund commenced operations on June 24, 2022. |
2 |
Fiscal
period from September 1, 2021 to March 31, 2022. The fund commenced
operations on October 18, 2021. The fiscal period ended March 31, 2022
includes the historical
operating results of the predecessor fund for the period ended September 1
through October 15, 2021. |
3 |
Predecessor
fund information for its fiscal year ended August 31,
2021. |
4 |
Predecessor
fund information for its fiscal year ended August 31,
2020. |
Subadvisory
Agreements
Duties
of the Subadvisors. Under the
terms of each of the current subadvisory agreements, including a sub-subadvisory
arrangement (each a “Subadvisory
Agreement” and collectively, the “Subadvisory Agreements”), the subadvisors
manage the investment and reinvestment of the assets of the funds,
subject to the supervision of the Board and the Advisor. In addition, for a fund
with a sub-subadvisory arrangement as indicated in its Prospectus,
the activities of the sub-subadvisor are subject to the supervision of that
fund’s subadvisor. Each
subadvisor formulates a continuous investment
program for each such fund consistent with its investment objectives and
policies outlined in the Prospectus. Each subadvisor implements such
programs by purchases and sales of securities and regularly reports to the
Advisor and the Board with respect to the implementation of such programs.
Each subadvisor, at its expense, furnishes all necessary investment and
management facilities, including salaries of personnel required for it to
execute its duties, as well as administrative facilities, including bookkeeping,
clerical personnel, and equipment necessary for the conduct of the investment
affairs of the assigned funds. Additional information about the funds’ portfolio
managers, including other accounts managed, ownership of fund
shares, and compensation structure, can be found at Appendix B to this
SAI.
The Advisor
has delegated to the subadvisors the responsibility to vote all proxies relating
to the securities held by the funds. See “Other Services — Proxy
Voting” below, for additional information.
Subadvisory
Fees. As
compensation for their services, each subadvisor receives fees from the Advisor
computed separately for each fund. In respect
of a
sub-subadvisory agreement, the fees are paid by the subadvisor to the entity
providing the sub-subadvisory services described below.
Affiliated
Subadvisors. The
Advisor and the Affiliated Subadvisors are controlled by Manulife
Financial.
Advisory
arrangements involving Affiliated Subadvisors and investment in affiliated
underlying funds present certain conflicts of interest. For each
fund subadvised by an Affiliated Subadvisor, the Affiliated Subadvisor will
benefit from increased subadvisory fees. In addition, MFC will
benefit, not only from the net advisory fee retained by the Advisor but also
from the subadvisory fee paid by the Advisor to the Affiliated Subadvisor.
Consequently,
the Affiliated Subadvisors and MFC may be viewed as benefiting financially from:
(i) the appointment of or continued service of Affiliated Subadvisors
to manage the funds; and (ii) the allocation of the assets of the funds to the
funds having Affiliated Subadvisors. Similarly, the Advisor may be viewed
as having a conflict of interest in the allocation of the assets of the funds to
affiliated underlying funds as opposed to unaffiliated underlying funds.
However, both the Advisor, in recommending to the Board the appointment or
continued service of Affiliated Subadvisors, and such Subadvisors,
in allocating the assets of the funds, have a fiduciary duty to act in the best
interests of the funds and their shareholders. The Advisor has a duty to
recommend that Affiliated Subadvisors be selected, retained, or replaced only
when the Advisor believes it is in the best interests of shareholders.
In addition, under the Trusts’ “Manager of Managers” exemptive order received
from the SEC, each Trust is required to obtain shareholder
approval of any subadvisory agreement appointing an Affiliated Subadvisor as the
subadvisor except as otherwise permitted by applicable SEC
No-Action Letter to a fund (in the case of a new fund, the initial sole
shareholder of the fund, an affiliate of the Advisor and MFC, may provide this
approval).
Similarly, each Affiliated Subadvisor has a duty to allocate assets to
Affiliated Subadvised funds, and affiliated underlying funds more broadly,
only when it believes this is in shareholders’ best interests and without regard
for the financial incentives inherent in making such allocations. The
Independent Trustees are aware of and monitor these conflicts of
interest.
Additional
Information Applicable to Subadvisory Agreements
Term of
each Subadvisory Agreement. Each
Subadvisory Agreement will initially continue in effect as to a fund for a
period no more than two years from the
date of its execution (or the execution of an amendment making the agreement
applicable to that fund) and thereafter if such continuance is specifically
approved at least annually either: (a) by the Trustees; or (b) by the vote of a
majority of the outstanding voting securities of that fund. In either
event, such continuance also shall be approved by the vote of the majority of
the Trustees who are not interested persons of any party to the Subadvisory
Agreements.
Any
required shareholder approval of any continuance of any
of the
Subadvisory Agreements shall be effective with respect to any fund if a majority
of the
outstanding voting securities of that fund votes to approve such continuance,
even if such continuance may not have been approved by a majority of the
outstanding voting securities of: (a) any other series of the applicable Trust
affected by the Subadvisory Agreement; or (b) all of the series of the
applicable
Trust.
Failure
of Shareholders to Approve Continuance of any Subadvisory
Agreement. If the
outstanding voting securities of any fund fail to approve any
continuance of any Subadvisory Agreement, the party may continue to act as
investment subadvisor with respect to such fund pending the required
approval of the continuance of the Subadvisory Agreement or a new agreement with
either that party or a different subadvisor, or other definitive
action.
Termination
of a Subadvisory Agreement. A
Subadvisory Agreement may be terminated at any time without the payment of any
penalty on 60 days’
written notice to the other party or parties to the Agreement, and also to the
relevant fund. The following parties may terminate a Subadvisory Agreement:
• |
with
respect to any fund, a majority of the outstanding voting securities of
such fund; |
• |
the
applicable
subadvisor. |
A
Subadvisory Agreement will automatically terminate in the event of its
assignment or upon termination of the Advisory Agreement.
Amendments
to the Subadvisory Agreements. A
Subadvisory Agreement may be amended by the parties to the agreement, provided
that the amendment
is approved by the vote of a majority of the outstanding voting securities of
the relevant fund (except as noted below) and by the vote of a majority of
the Independent Trustees. The required shareholder approval of any amendment to
a Subadvisory Agreement shall be effective with respect to
any fund if a majority of the outstanding voting securities of that fund votes
to approve the amendment, even if the amendment may not have been
approved by a majority of the outstanding voting securities of: (a) any other
series of the applicable Trust affected by the amendment; or (b) all the
series of the applicable Trust.
As noted
under “Who’s who — Investment advisor” in the
Prospectus, an SEC order permits the Advisor, subject to approval by the Board
and a majority of
the Independent Trustees, to appoint a subadvisor (other than an Affiliated
Subadvisor), or change a subadvisory fee or otherwise amend a subadvisory
agreement (other than with an Affiliated Subadvisor) pursuant to an agreement
that is not approved by shareholders.
Other
Services
Proxy
Voting. Based on
the terms of the current Subadvisory Agreements, each Trust’s proxy voting
policies and procedures (the “Trust Procedures”) delegate to
the subadvisors of each of its funds the responsibility to vote all proxies
relating to securities held by that fund in accordance with the subadvisor’s
proxy voting policies and procedures. A subadvisor has a duty to vote or not
vote such proxies in the best interests of the fund it subadvises
and its shareholders, and to avoid the influence of conflicts of interest. In
the event that the Advisor assumes day-to-day management responsibilities
for the fund, each Trust’s Procedures delegate proxy voting responsibilities to
the Advisor. Complete descriptions of the Trust Procedures
and the proxy voting procedures of the Advisor and the subadvisors are set forth
in Appendix C to this SAI.
It is
possible that conflicts of interest could arise for a subadvisor when voting
proxies. Such conflicts could arise, for example, when a subadvisor or
its
affiliate has an existing business relationship with the issuer of the security
being voted or with a third party that has an interest in the vote. A
conflict of
interest also could arise when a fund, its Advisor or principal underwriter or
any of their affiliates has an interest in the vote.
In the
event a subadvisor becomes aware of a material conflict of interest, the Trust
Procedures generally require the subadvisor to follow any conflicts procedures
that may be included in the subadvisor’s proxy voting procedures. Although
conflicts procedures will vary among subadvisors, they generally
include one or more of the following:
(a) voting
pursuant to the recommendation of a third party voting service;
(b) voting
pursuant to pre-determined voting guidelines; or
(c)
referring voting to a special compliance or oversight committee.
The
specific conflicts procedures of each subadvisor are set forth in its proxy
voting procedures included in Appendix C. While these conflicts procedures
may reduce the influence of conflicts of interest on proxy voting, such
influence will not necessarily be eliminated.
Although a
subadvisor may have a duty to vote all proxies on behalf of the fund that it
subadvises, it is possible that the subadvisor may not be able to vote
proxies under certain circumstances. For example, it may be impracticable to
translate in a timely manner voting materials that are written in a foreign
language or to travel to a foreign country when voting in person rather than by
proxy is required. In addition, if the voting of proxies for shares of a
security prohibits a subadvisor from trading the shares in the marketplace for a
period of time, the subadvisor may determine that it is not in the
best
interests of the fund to vote the proxies. In addition, consistent with its duty
to vote proxies in the best interests of a fund’s shareholders, a subadvisor
may refrain from voting one or more of the fund’s proxies if the subadvisor
believes that the costs of voting such proxies may outweigh the potential
benefits. For example, the subadvisor may choose not to recall securities where
the subadvisor believes the costs of voting may outweigh the potential
benefit of voting. A subadvisor also may choose not to recall securities that
have been loaned in order to vote proxies for shares of the security
since the fund would lose security lending income if the securities were
recalled.
Information
regarding how a fund voted proxies relating to portfolio securities during the
most recent 12-month period ended June 30th is available: (1) without
charge, on www.jhinvestments.com and (2) on the SEC’s website at
sec.gov.
DISTRIBUTION
AGREEMENTS
Each Trust
has a Distribution Agreement with John Hancock Investment Management
Distributors LLC, an affiliate of the Advisor, located at 200 Berkeley
Street, Boston, Massachusetts 02116. Under the Distribution Agreement, the
Distributor is obligated to use its best efforts to sell shares of each class
of the funds. Shares of the funds also are sold by selected broker-dealers,
banks and registered investment advisors (“Selling Firms”) that have
entered into selling agreements with the Distributor. These Selling Firms are
authorized to designate other intermediaries to receive purchase and
redemption orders on behalf of the funds. The Distributor accepts orders for the
purchase of the shares of the funds that are continually offered at the NAV
next determined, plus any applicable sales charge. Class A
shares of Money Market Fund and Class I,
Class NAV, Class R2, Class R4, Class R5, Class
R6, and Class 1 shares of the funds are offered without a front-end sales load
or CDSC. In connection with the sale of Class A shares (for
funds other
than Money Market Fund), the
Distributor and Selling Firms typically receive compensation from a sales charge
imposed at the time of sale. In
the case of both Class A shares and Class C shares where a CDSC is applicable,
the Selling Firms receive compensation immediately, but the Distributor
is compensated on a deferred basis. Neither the Distributor nor Selling Firms
receive any compensation with respect to the sale of Class R6 shares of
the funds.
With
respect to share classes other than Class R6, the Distributor may make, either
from Rule 12b-1 distribution fees, if applicable, or out of its own resources,
additional payments to financial intermediaries (firms), such as broker-dealers,
banks, registered investment advisors, independent financial
planners, and retirement plan administrators. These payments are sometimes
referred to as “revenue sharing.” No such payments are made with
respect to the funds’ Class R6 shares.
The funds
do not issue share certificates. Shares are electronically recorded. The Board
reserves the right to change or waive a fund’s minimum investment
requirements and to reject any order to purchase shares (including purchase by
exchange) when, in the judgment of the Advisor or the relevant
subadvisor, such rejection is in the fund’s best interest.
Underwriting
Commissions. The
following table shows the underwriting commissions that the Distributor charged
and retained with respect to transactions
in Class A and Class C shares of the applicable funds for
the fiscal periods ended March 31, 2022, March 31,
2021, and March
31, 2020.
|
|
|
|
|
|
|
|
|
|
Fiscal
Period Ended March 31, |
Fund |
Share
Class |
2022 ($) |
2021 ($) |
2020 ($) |
|
|
Amount
Charged |
Amount
Retained |
Amount
Charged |
Amount
Retained |
Amount
Charged |
Amount
Retained |
Disciplined
Value Fund |
Class
A |
1,167,952 |
191,907 |
535,292 |
81,584 |
879,024 |
139,049 |
|
Class
C |
0 |
0 |
0 |
0 |
0 |
0 |
Disciplined
Value Mid Cap
Fund |
Class
A |
1,228,595 |
186,791 |
719,014 |
112,581 |
997,601 |
156,664 |
|
Class
C |
0 |
0 |
0 |
0 |
0 |
0 |
Fundamental
Equity Income1
|
Class
A |
– |
– |
– |
– |
– |
– |
|
Class
C |
– |
– |
– |
– |
– |
– |
Global
Shareholder Yield Fund |
Class
A |
206,418 |
34,701 |
196,534 |
33,879 |
413,268 |
71,554 |
|
Class
C |
0 |
0 |
0 |
0 |
0 |
0 |
International
Growth Fund |
Class
A |
541,614 |
89,738 |
396,878 |
67,373 |
160,925 |
27,265 |
|
Class
C |
0 |
0 |
0 |
0 |
0 |
0 |
Mid
Cap Growth Fund |
Class
A |
02
|
02
|
–3
|
–3
|
–4
|
–4
|
|
Class
C |
02
|
02
|
–3
|
–3
|
–4
|
–4
|
U.S.
Growth Fund |
Class
A |
254,436 |
41,250 |
312,967 |
50,754 |
427,513 |
69,709 |
|
|
|
|
|
|
|
|
|
|
Fiscal
Period Ended March 31, |
Fund |
Share
Class |
2022 ($) |
2021 ($) |
2020 ($) |
|
Class
C |
0 |
0 |
0 |
0 |
0 |
0 |
1 |
The
fund commenced operations on June 24, 2022. |
2 |
Fiscal
period from September 1, 2021 to March 31, 2022. The fund commenced
operations on October 18, 2021. The fiscal period ended March 31, 2022
includes the historical
operating results of the predecessor fund for the period ended September 1
through October 15, 2021. |
3 |
Predecessor
fund information for its fiscal year ended August 31,
2021. |
4 |
Predecessor
fund information for its fiscal year ended August 31,
2020. |
Distribution
Plans. The Board
has adopted distribution plans with respect to Class A, Class C, Class R2, Class
R4, Class R5, and Class 1 shares pursuant to
Rule 12b-1 under the 1940 Act (the “Rule 12b-1 Plans”). Under the Rule 12b-1
Plans, a fund may pay distribution and service fees based on average
daily net assets attributable to those classes, at the maximum aggregate annual
rates shown in the following table. However, the service portion of
the Rule 12b-1 fees borne by a class of shares of a fund will not exceed 0.25%
of average daily net assets attributable to such class of shares.
|
|
Share
Class |
Rule
12b-1 Fee (%) |
Class
A (Global Shareholder Yield Fund and International Growth
Fund) |
0.30 |
Class
A1,2
(Disciplined Value Fund, Disciplined Value Mid Cap Fund, Fundamental
Equity Income Fund, Mid Cap Growth Fund,
Money Market Fund, and U.S. Growth Fund) |
0.25 |
Class
C2
|
1.00 |
Class
R2 |
0.25 |
Class
R43
|
0.25 |
Class
R5 |
0.00 |
Class
1 |
0.05 |
1 |
Although
Class A shares of Disciplined Value Fund and Disciplined Value Mid Cap
Fund currently pay distribution and service fees at an aggregate annual
rate of up to 0.25%,
the Board has approved the payment by these funds’ Class A shares of
distribution and service fees of up to 0.30%, or some lesser amount as the
Board shall approve
from time to time. |
2 |
The
Distributor has contractually agreed to limit the Rule 12b-1 distribution
and service fees for Class A and Class C shares of Money Market Fund to
0.00% until July 31, 2023. |
3 |
The
Distributor has contractually agreed to limit the Rule 12b-1 distribution
and service fees for Class R4 shares of the Disciplined Value Fund,
Disciplined Value Mid Cap Fund,
International Growth Fund, and U.S. Growth Fund
to
0.15% until July 31, 2023. |
There are
two types of Rule 12b-1 Plans: “reimbursement” and “compensation” plans. While a
reimbursement plan provides for reimbursement of certain
distribution and shareholder service expenses of a fund, a compensation plan
provides for direct payment of distribution and shareholder service
fees to the Distributor. Except as noted below, the funds’ Rule 12b-1 Plans are
compensation Rule 12b-1 Plans. Under a compensation Rule 12b-1 Plan,
the Distributor will retain the entire amount of the payments made to it, even
if such amount exceeds the Distributor’s actual distribution-related
expenses for the applicable fiscal year.
The fees
charged under the Rule 12b-1 Plans will be paid to the Distributor either in
reimbursement of distribution and shareholder service expenses incurred by
the Distributor on the funds’ behalf, or as direct compensation to the
Distributor in contemplation of such expenses, as noted above. The
distribution
portion of the fees payable pursuant to the Rule 12b-1 Plans may be spent on any
activities or expenses primarily intended to result in the sale of
shares of the particular class, including but not limited to: (i) compensation
to Selling Firms and others (including affiliates of the Distributor)
that are
engaged in or support the sale of fund shares; and (ii) marketing, promotional
and overhead expenses incurred in connection with the distribution
of fund shares. The service portion of the fees payable pursuant to the Rule
12b-1 Plans may be used to compensate Selling Firms and others for
providing personal and account maintenance services to
shareholders.
The fees
paid under the Class 1 shares’ Rule 12b-1 Plans also may be used for certain
shareholder and administrative services.
The Class C
Rule 12b-1 Plan operates as a reimbursement Rule 12b-1 Plan. Under a
reimbursement Rule 12b-1 Plan, if the aggregate payments received by
the Distributor for the fund in any fiscal year exceed the expenditures made by
the Distributor in that year pursuant to that Rule 12b-1 Plan, the
Distributor will reimburse the fund for the amount of the excess. If, however,
the expenditures made by the Distributor on the fund’s behalf during any
fiscal year exceed the payments received under the Class C reimbursement Rule
12b-1 Plan, the Distributor is entitled to carry over such unreimbursed
expenses with interest to be paid in subsequent fiscal years from available Rule
12b-1 amounts. The fund does not treat unreimbursed expenses
under the Class C Rule 12b-1 Plan as a liability of the fund, because the
Trustees can terminate this Plan at any time with no additional liability
to the shareholders and the fund for these expenses.
The Rule
12b-1 Plans and all amendments were approved by the Board, including a majority
of the Independent Trustees, by votes cast in person at meetings
called for the purpose of voting on the Rule 12b-1 Plans. Pursuant to the Rule
12b-1 Plans, at least quarterly, the Distributor provides the Board with
a written report of the amounts expended under the Rule 12b-1 Plans and the
purpose for which these expenditures were made. The Board reviews
these reports on a quarterly basis to determine the continued appropriateness of
such expenditures.
Each Rule
12b-1 Plan provides that it will continue in effect only so long as its
continuance is approved at least annually by a majority of both the Board
and the
Independent Trustees. Each Rule 12b-1 Plan provides that it may be terminated
without penalty: (a) by a vote of a majority of the Independent Trustees;
and (b) by a vote of a majority of the fund’s outstanding shares of the
applicable class, in each case upon 60 days’ written notice to the Distributor.
Each Rule 12b-1 Plan further provides that it may not be amended to increase
materially the maximum amount of the fees for the services described
therein without the approval of a majority of the outstanding shares of the
class of a fund that has voting rights with respect to the Rule 12b-1 Plan. The
Rule 12b-1 Plans provide that no material amendment to the Rule 12b-1 Plans will
be effective unless it is approved by a majority vote of the Board
and the Independent Trustees of the relevant Trust. The holders of Class A,
Class C, Class R2, Class R4, Class R5, and Class 1 shares have exclusive
voting rights with respect to the Rule 12b-1 Plans applicable to their class of
shares. In adopting the Rule 12b-1 Plans, the Board, including the
Independent Trustees, concluded that, in their judgment, there is a reasonable
likelihood that the Rule 12b-1 Plans will benefit the holders of the
applicable
classes of shares of each fund.
Class I,
Class NAV, and Class R6 shares of the funds are not subject to any Rule 12b-1
Plan. Expenses associated with the obligation of the Distributor to use its
best efforts to sell Class I, Class NAV, and Class R6 shares will be paid by the
Advisor or by the Distributor and will not be paid from the fees paid under
the Rule 12b-1 Plan for any other class of shares. In
addition, expenses associated with the obligation of the Distributor to use its
best efforts to
sell Class R5 shares will be paid by the Advisor or by the Distributor and will
not be paid by the funds.
Amounts
paid to the Distributor by any class of shares of a fund will not be used to pay
the expenses incurred with respect to any other class of shares of that
fund; provided, however, that expenses attributable to the fund as a whole will
be allocated, to the extent permitted by law, according to a formula
based upon gross sales dollars and/or average daily net assets of each such
class, as may be approved from time to time by vote of a majority of the
Trustees. From time to time, a fund may participate in joint distribution
activities with other funds and the costs of those activities will be borne
by the fund
in proportion to the relative NAVs of the fund and the other funds.
Each Rule
12b-1 Plan (other than
the Class C Rule 12b-1 Plan for Money Market Fund) recognizes
that the Advisor may use its management fee revenue
under the Advisory Agreement with a fund as well as its past profits or other
resources from any source to make payments with respect to expenses
incurred in connection with the distribution of shares of the fund. To the
extent that the payment of management fees by a fund to the Advisor
should be deemed to be the indirect financing of any activity primarily intended
to result in the sale of shares of a class within the meaning of Rule 12b-1,
such payments are deemed to be authorized by the Rule 12b-1 Plan.
During the
fiscal period ended March 31, 2022, the
following amounts were paid to the Distributor pursuant to each fund’s Rule
12b-1 Plans.
|
|
|
|
Portfolio |
Share
Class |
Rule
12b-1 Service Fee Payments ($) |
Rule
12b-1 Distribution Fee Payments ($) |
Disciplined
Value Fund |
Class
A |
2,819,288 |
0 |
|
Class
C |
315,802 |
947,408 |
|
Class
R2 |
125,635 |
0 |
|
Class
R4 |
154,538 |
0 |
Disciplined
Value Mid Cap Fund |
Class
A |
3,463,340 |
0 |
|
Class
C |
194,431 |
583,292 |
|
Class
R2 |
265,217 |
0 |
|
Class
R4 |
343,230 |
0 |
Fundamental
Equity Income Fund1
|
Class
A |
– |
– |
|
Class
C |
– |
– |
Global
Shareholder Yield Fund |
Class
A |
813,037 |
162,607 |
|
Class
C |
62,967 |
188,902 |
|
Class
R2 |
1,632 |
0 |
International
Growth Fund |
Class
A |
1,804,402 |
360,881 |
|
Class
C |
538,367 |
1,615,102 |
|
Class
1 |
41,558 |
0 |
|
Class
R2 |
118,896 |
0 |
|
Class
R4 |
124,621 |
0 |
Mid
Cap Growth Fund2
|
Class
A |
1,984 |
0 |
|
Class
C |
108 |
62 |
U.S.
Growth Fund |
Class
A |
1,762,938 |
0 |
|
Class
C |
87,553 |
262,659 |
|
Class
R2 |
3,895 |
0 |
|
|
|
|
Portfolio |
Share
Class |
Rule
12b-1 Service Fee Payments ($) |
Rule
12b-1 Distribution Fee Payments ($) |
|
Class
R4 |
11 |
0 |
1 |
The
fund commenced operations on June 24, 2022. |
2 |
Period
from October 18, 2021 (commencement of operations) to March 31,
2022. |
During the
fiscal period ended March 31, 2022, the
following unreimbursed expense amounts were incurred under the Class C
reimbursement Rule 12b-1 Plan
for Money Market Fund:
|
|
|
|
Fund |
Share
Class |
Unreimbursed
Expenses ($) |
Unreimbursed
Expenses as a Percent of
the Share Class Net Assets (%) |
Money
Market Fund |
Class
C |
3,517,418 |
30 |
Class R
Service Plans. Each Trust
has adopted a separate service plan with respect to Class R2, Class R4, and
Class R5 shares of the applicable funds (the
“Class R Service Plans”). The Class R Service Plans authorize a fund to pay
securities dealers, plan administrators or other service organizations
who agree to provide certain services to retirement plans, or plan participants
holding shares of the fund a service fee of up to a specified
percentage of the fund’s average daily net assets attributable to the applicable
class of shares held by such plan participants. The percentages
are 0.25% for Class R2 shares, 0.10% for Class R4 shares, and 0.05% for Class R5
shares. The services may include (a) acting, directly or through
an agent, as the shareholder and nominee for all plan participants; (b)
maintaining account records for each plan participant that beneficially
owns the applicable class of shares; (c) processing orders to purchase, redeem
and exchange the applicable class of shares on behalf of plan
participants, and handling the transmission of funds representing the purchase
price or redemption proceeds; (d) addressing plan participant questions
regarding their accounts and the funds; and (e) other services related to
servicing such retirement plans.
SALES
COMPENSATION
As part of
their business strategy, the funds, along with the Distributor, pay compensation
to Selling Firms that sell the shares of the funds. These firms typically
pass along a portion of this compensation to the shareholder’s broker or
financial professional.
The primary
sources of Selling Firm compensation payments for sales of shares of the funds
are: (1) the Rule 12b-1 fees that are applicable to the class of
shares being sold and that are paid out of a fund’s assets; and (2) in the case
of Class A and Class C shares of funds
other than Money Market Fund, sales
charges paid by investors. The sales charges and Rule 12b-1 fees are detailed in
the relevant Prospectus and under “Distribution Agreements,”
“Sales Charges on Class A and Class C Shares,” and “Deferred Sales Charge on
Class A and Class C Shares” in this SAI. For Class I shares, the
Distributor may make a one-time payment at the time of initial purchase out of
its own resources to a Selling Firm that sells Class I shares of the
funds. This payment may not exceed 0.15% of the amount invested.
The Advisor
and its affiliates have
voluntarily agreed to waive a
portion of their fees
(including, but not limited to, distribution and service (Rule 12b-1)
fees)
and/or to reimburse certain expenses to the extent necessary to assist Money
Market Fund in attempting to avoid a negative yield. There is no guarantee
that the fund will achieve a
positive yield or avoid a
negative yield. These expense waivers and/or reimbursements may be amended or
terminated
at any time by the Advisor. These voluntary waivers are in addition to existing
contractual limitations.
Initial
Compensation. Whenever an
investor purchases Class A shares of funds other than Money Market Fund or Class
C shares of a fund, the Selling
Firm receives a reallowance/payment/commission as described in the section
“First Year Broker or Other Selling Firm Compensation.”
Annual
Compensation. Except as
provided below, for Class A share purchases of a fund, beginning with the first
year an investment is made, the Selling
Firm receives an annual Rule 12b-1 fee of 0.25% of its average daily net assets
invested in the fund. This Rule 12b-1 fee is paid monthly in arrears.
For Class A
investments of $1 million or more and investments by certain retirement plans,
Class C shares of a fund, beginning in the second year after an
investment is made, the Selling Firm receives an annual Rule 12b-1 service fee
of 0.25% of its average daily net (aged) assets invested in the fund.
The term
“(aged) assets” used in this context refers to investments of $1 million or more
in Class A shares that are held for more than one year and therefore
would not be subject to the relevant CDSC upon redemption. In addition,
beginning in the second year after an investment is made in Class C shares of a
fund, the Distributor will pay the Selling Firm a distribution fee in an amount
not to exceed 0.75% of the average daily net (aged) assets invested in
the fund. These service and distribution fees are paid monthly in
arrears.
For Class
R2 and Class R4 shares of a fund, beginning in the first year after an
investment is made, the Selling Firm receives an annual Rule 12b-1 service fee
of 0.25% of its average daily net (aged) assets, except that the annual Rule
12b-1 distribution fee payable to Selling Firms for Class R4 shares of
certain funds is limited to 0.15% of the average daily net assets of Class R4
shares for each such fund until July 31, 2023, as
described in each such
fund’s Class R4 Prospectus.
For more
information, see the table below under the column captioned “Selling Firm
receives Rule 12b-1 service fee.” These service and distribution fees are
paid monthly in arrears.
The
Distributor may pay all or part of the Rule 12b-1 fees applicable to Class 1
shares of a fund to one or more affiliated and unaffiliated insurance
companies
that have issued group annuity contracts for which the fund serves as an
investment vehicle as compensation for providing some or all of the types
of services contemplated by the Class 1 Rule 12b-1 Plan. In addition, as further
compensation for providing these services, the Advisor, but not any of
the funds, pays each Affiliated Insurance Company an administrative fee equal to
0.25% of the total average daily net assets of the funds attributable
to variable contracts issued by the Affiliated Insurance Company.
Additional
Payments to Financial Intermediaries. Shares of
the funds are primarily sold through financial intermediaries (firms), such as
broker-dealers,
banks, registered investment advisors, independent financial planners, and
retirement plan administrators. In addition to sales charges, which are
payable by shareholders, and Rule 12b-1 distribution fees, which are paid by the
funds, the Advisor, the Distributor or another affiliate makes
additional payments to firms out of its own resources. These payments are
sometimes referred to as “revenue sharing.” Many firms involved in the sale of
fund shares receive one or more types of these cash payments. The categories of
payments that the Advisor, the Distributor or another affiliate
provides to firms are described below. These categories are not mutually
exclusive and the Advisor, the Distributor or another affiliate may make
additional types of revenue sharing payments in the future. Some firms receive
payments under more than one or all categories. These payments assist in
the efforts of the Advisor, the Distributor or another affiliate to promote the
sale of the funds’ shares. The Advisor, the Distributor or another affiliate
agrees with the firm on the methods for calculating any additional compensation,
which may include the level of sales or assets attributable to the firm.
Not all firms receive additional compensation and the amount of compensation
varies. These payments could be significant to a firm and are an
important factor in a firm’s willingness to support the sale of the funds
through its distribution system. To the extent firms receiving such payments
purchase
shares of the funds on behalf of their clients, the Advisor and/or the
Distributor benefit from increased management and other fees with respect to
those assets. The Advisor, the Distributor or another affiliate determines which
firms to make payments to and the extent of the payments it is willing
to make. The Advisor, the Distributor or another affiliate generally chooses to
compensate firms that have a strong capability to distribute shares of
the funds and that are willing to cooperate with the promotional efforts of the
Advisor, the Distributor or another affiliate. The Advisor, the Distributor
or another affiliate does not make an independent assessment of the cost of
providing such services.
The
provision of these additional payments, the varying fee structures and the basis
on which a firm compensates its registered representatives or salespersons
creates an incentive for a particular firm, registered representative, or
salesperson to highlight, feature or recommend funds, including the funds,
or other investments based, at least in part, on the level of compensation paid.
Additionally, if greater payments are made with respect to one mutual
fund complex than another, a firm has an incentive to recommend one fund complex
over another. Similarly, if a firm receives greater compensation
for one share class versus another, that firm has an incentive to recommend the
share class with the greater compensation. Shareholders
should consider whether such incentives exist when evaluating any
recommendations from a firm to purchase or sell shares of the funds and when
considering which share class is most appropriate. Shareholders should ask their
salesperson or visit their firm’s website for more information
about the additional payments they receive and any potential conflicts of
interest, as well as for information regarding any fees and/or commissions
the firm charges. Firms may categorize and disclose these arrangements
differently than the Distributor and its affiliates.
As of March
31, 2022, the
following member firms of the Financial Industry Regulatory Authority,
Inc. (“FINRA”)
have arrangements in effect with the Advisor,
the Distributor or another affiliate pursuant to which the firm is entitled to a
revenue sharing payment at an annual rate of up to 0.25% of the value of
the fund shares sold or serviced by the firm:
|
Business
Partner Firms |
Advisor
Group-FSC Securities Corporation |
Advisor
Group-Royal Alliance Associates, Inc. |
Advisor
Group-Sagepoint Financial, Inc. |
Advisor
Group-Woodbury Financial Services |
Advisor
Group-Securities America, Inc. |
Advisor
Group-Triad Advisors, LLC. |
Ameriprise
Financial Services, Inc. |
Avantax
Wealth Management |
Banc
of America/Merrill Lynch |
BOK
Financial Securities, Inc. |
Centaurus
Financial, Inc. |
Cetera
- Advisor Network LLC |
Cetera
- Advisors LLC |
Cetera
- Financial Institutions |
Cetera
- Financial Specialists, Inc. |
Cetera
- First Allied Securities, Inc. |
Cetera
- Summit Brokerage Services, Inc. |
Charles
Schwab |
Commonwealth
Financial Network |
|
Business
Partner Firms |
Concourse
Financial Group Securities |
Crown
Capital Securities L.P. |
DA
Davidson & Co Inc. |
Edward
D. Jones & Co. LP |
Fidelity
- Fidelity Brokerage Services LLC |
Fidelity
- Fidelity Investments Institutional Operations Company,
Inc. |
Fidelity
- National Financial Services LLC |
Fifth
Third Securities, Inc. |
First
Command Financial Planning |
|
Business
Partner Firms |
First
Horizon Advisors |
Geneos
Wealth Management |
GWFS
Equities, Inc. |
Independent
Financial Group |
Infinex
Investments Inc. |
J.P.
Morgan Securities LLC |
Key
Investment Services |
Leumi
Investment Services, Inc. |
LPL
Financial LLC |
MML
Investor Services, Inc. |
Money
Concepts Capital Corp. |
Morgan
Stanley Wealth Management, LLC |
Northwestern
Mutual Investment Services, LLC |
|
Business
Partner Firms |
Principal
Securities, Inc. |
Raymond
James and Associates, Inc. |
Raymond
James Financial Services, Inc. |
RBC
Capital Markets Corporation |
Robert
W. Baird & Co. |
Stifel,
Nicolaus, & Co, Inc. |
TD
Ameritrade |
The
Investment Center, Inc. |
Transamerica
Financial Advisors, Inc. |
UBS
Financial Services, Inc. |
Unionbanc
Investment Services |
Wells
Fargo Advisors |
The
Advisor, the Distributor or another affiliate also has arrangements with
intermediaries that are not members of FINRA.
The
Advisor, the Distributor or another affiliate may revise the terms of any
existing revenue sharing arrangement, and may enter into additional revenue
sharing arrangements with other firms in the future.
Sales
and Asset Based Payments. The
Advisor, the Distributor or another affiliate makes revenue sharing payments as
incentives to certain firms to promote and
sell shares of the funds. The Advisor, the Distributor or another affiliate
hopes to benefit from revenue sharing by increasing the funds’ net assets,
which, as well as benefiting the funds, would result in additional management
and other fees for the Advisor and its affiliates. In consideration
for revenue sharing compensation, some firms will feature certain funds in their
sales systems or give the Advisor, the Distributor or another
affiliate additional access to members of their sales forces or management. In
addition, some firms agree to participate in the marketing efforts of
the Advisor, the Distributor or another affiliate by allowing the Advisor, the
Distributor or another affiliate to participate in conferences, seminars or
other programs attended by the firm’s sales force. Although certain firms seek
revenue sharing payments to offset costs incurred by the firm in
servicing the firm’s clients that have invested in the funds, such firms may
still earn a profit on these payments. Revenue sharing payments provide a
firm with an incentive to recommend the funds.
The
payments to firms generally are negotiated based on a number of factors
including, but not limited to, quality of service, reputation in the industry,
ability to
attract and retain assets, target markets, customer relationships, and
relationship with the Advisor, the Distributor or another affiliate. No
one factor
is determinative of the type or amount of additional compensation to be
provided. The amount of these payments, as determined from time to time by
the Advisor, the Distributor or another affiliate in its sole discretion, may be
different for different firms. For example, one way in which revenue
sharing payments made by the Advisor, the Distributor or another affiliate are
calculated is on sales of shares of the funds (“Sales-Based Payments”).
Such payments can also be calculated on the average daily net assets of the
applicable funds attributable to that particular financial intermediary
or on another subset of assets of funds in the John Hancock Fund Complex
(“Asset-Based Payments”). Sales-Based Payments primarily create
incentives for firms to sell shares of the funds and Asset-Based Payments
primarily create incentives for firms to retain previously sold shares of
the funds
in investor accounts. The Advisor, the Distributor or another affiliate pays
firms either or both Sales-Based Payments and Asset-Based Payments.
The compensation arrangements described in this section are not mutually
exclusive, and a single firm may receive multiple types of compensation.
Such payments may be calculated by reference to the gross or net sales by such
person, the average net assets of shares held by the customers
of such person, the number of accounts of the funds attributable to such person,
on the basis of a flat fee or a negotiated lump sum payment for
services provided, or otherwise.
Administrative,
Technology, and Processing Support Payments. The
Advisor, the Distributor or another affiliate also pays certain firms that sell
shares of
the funds for certain administrative services, including recordkeeping and
sub-accounting shareholder accounts, to the extent that the funds do not pay
for these costs directly. The Advisor, the Distributor or another affiliate also
makes payments to certain firms that sell shares of the funds in connection
with client account maintenance support, statement preparation and transaction
processing. The types of payments that the Advisor, the Distributor
or another affiliate makes under this category include, among others, payment of
ticket charges per purchase or exchange order placed by a financial
intermediary, payment of networking fees in connection with certain fund trading
systems, or one-time payments for ancillary services such as setting
up funds on a firm’s fund trading system. The Advisor, the Distributor or
another affiliate also makes platform support payments to some firms for
the purpose of supporting services provided by a financial firm’s servicing of
shareholder accounts, including, but not limited to, platform education
and communications, relationship management support, development to support new
or changing products, eligibility for inclusion on sample fund
line-ups, trading or order taking platforms and related
infrastructure/technology and/or legal, risk management and regulatory
compliance
infrastructure in support of investment related products, programs and services.
In addition, the Advisor, the Distributor or another affiliate
may pay for certain services including technology, operations, tax, “due
diligence,” or audit consulting services.
Retirement
Plan Program Servicing Payments. The
Advisor, the Distributor or another affiliate may make payments to certain
financial intermediaries
who sell fund shares through retirement plan programs. A financial intermediary
may perform retirement plan program services itself
or may
arrange with a third party to perform retirement plan program services. In
addition to participant recordkeeping, reporting or transaction processing,
retirement plan program services may include: services rendered to a plan in
connection with fund/investment selection and monitoring; employee
enrollment and education; plan balance rollover or separation; or other similar
services.
Marketing
Support Payments. The
Advisor, the Distributor or another affiliate makes payments to some firms for
marketing support services, including:
providing periodic and ongoing education and training and support of firm
personnel regarding the funds; disseminating to firm personnel information
and product marketing materials regarding the funds; explaining to firms’
clients the features and characteristics of the funds; conducting due
diligence regarding the funds; granting access (in some cases on a preferential
basis over other competitors) to sales meetings, sales representatives
and management representatives of the firm; and providing business planning
assistance, marketing support, advertising and other services.
Other
Cash Payments. From time
to time, the Advisor, the Distributor or another affiliate provides, either from
Rule 12b-1 distribution fees or out of its own
resources, additional compensation to firms that sell or arrange for the sale of
shares of the funds. Such compensation provided by the Advisor,
the Distributor or another affiliate may take various forms, including payments
for the receipt of analytical data in relation to sales of fund shares,
financial assistance to firms that enable the Advisor, the Distributor or
another affiliate to participate in and/or present at conferences or
seminars,
sales or training programs for invited registered representatives and other
employees, client entertainment, client and investor events, and other
firm-sponsored events, and travel expenses, including lodging incurred by
registered representatives and other employees in connection with client
prospecting, retention and due diligence trips. Other compensation may be
offered to the extent not prohibited by federal or state laws or any
self-regulatory
agency, such as FINRA. The Advisor, the Distributor or another affiliate makes
payments for entertainment events it deems appropriate, subject to
its guidelines and applicable law. These payments vary depending upon the nature
of the event or the relationship.
In certain
circumstances, the Advisor, the Distributor or another affiliate has other
relationships with some firms relating to the provisions of services
to the
funds, such as providing omnibus account services or transaction processing
services, or effecting portfolio transactions for the funds. If a firm
provides
these services, the Advisor or the funds may compensate the firm for these
services. In addition, in certain circumstances, some firms have other
compensated or uncompensated relationships with the Advisor or its affiliates
that are not related to the funds.
|
|
|
|
|
First
Year Broker or Other Selling Firm Compensation |
|
Investor
pays sales charge
(% of offering price)1
|
Selling
Firm receives commission2
|
Selling
Firm receives Rule
12b-1 service fee |
Total
Selling Firm compensation3,4
|
Class
A investments (all funds except
Money Market Fund)5
|
|
|
|
|
Up to
$49,999 |
5.00% |
4.25% |
0.25% |
4.50% |
$50,000
- $99,999 |
4.50% |
3.75% |
0.25% |
4.00% |
$100,000
- $249,999 |
3.50% |
2.85% |
0.25% |
3.10% |
$250,000
- $499,999 |
2.50% |
2.10% |
0.25% |
2.35% |
$500,000
- $999,999 |
2.00% |
1.60% |
0.25% |
1.85% |
Class
A investments (Money Market Fund) All
amounts |
— |
0.00% |
0.00% |
0.00% |
Class
A investments of $1 million or more
(all funds except Money Market
Fund)6
|
|
|
|
|
First
$1M - $4,999,999 |
— |
0.75% |
0.25% |
1.00% |
Next
$1 - $5M above that |
— |
0.25% |
0.25% |
0.50% |
Next
$1 or more above that |
— |
0.00% |
0.25% |
0.25% |
Class
C investments (all funds except
Money Market Fund)7 All
Amounts |
— |
0.75% |
0.25% |
1.00% |
Class
C investments (Money Market Fund)7 All
Amounts |
— |
0.75% |
0.00% |
0.75% |
Class
R2 investments5 All
Amounts |
— |
0.00% |
0.25% |
0.25% |
Class
R4 investments5 All
Amounts |
— |
0.00% |
0.15% |
0.15% |
|
|
|
|
|
First
Year Broker or Other Selling Firm Compensation |
|
Investor
pays sales charge
(% of offering price)1
|
Selling
Firm receives commission2
|
Selling
Firm receives Rule
12b-1 service fee |
Total
Selling Firm compensation3,4
|
Class
R5 investments All
Amounts |
— |
0.00% |
0.00% |
0.00% |
Class
R6 investments All
Amounts |
— |
0.00% |
0.00% |
0.00% |
Class
I investments8 All
Amounts |
— |
0.00% |
0.00% |
0.00% |
Class
1 investments All
Amounts |
— |
0.00% |
0.05% |
0.05% |
Class
NAV investments All
Amounts |
0.00% |
0.00% |
0.00% |
0.00% |
1 |
See
“Sales Charges on Class A and Class C Shares” for discussion on how to
qualify for a reduced sales charge. The Distributor may take recent
redemptions into account in
determining if an investment qualifies as a new
investment. |
2 |
For
Class A investments under $1 million, a portion of the Selling Firm’s
commission is paid out of the front-end sales
charge. |
3 |
Selling
Firm commission, Rule 12b-1 service fee, and any underwriter fee
percentages are calculated from different amounts, and therefore may not
equal the total Selling Firm
compensation percentages due to rounding, when combined using simple
addition. |
4 |
The
Distributor retains the balance. |
5 |
For
purchases of Class A, Class R2, and Class R4 shares, beginning with the
first year an investment is made, the Selling Firm receives an annual Rule
12b-1 service fee paid
monthly in arrears. See “Distribution Agreements” for a description of
Class A, Class R2, and Class R4 Service Plan charges and
payments. |
6 |
Certain
retirement platforms may invest in Class A shares without being subject to
sales charges. Purchases via these platforms may pay a commission from the
first dollar
invested. Additionally, commissions (up to 1.00%) are paid to dealers who
initiate and are responsible for certain Class A share purchases not
subject to sales charges.
In both cases, the Selling Firm receives Rule 12b-1 fees in the first year
as a percentage of the amount invested. After the first year, the Selling
Firm receives Rule 12b-1
fees as a percentage of average daily net eligible assets paid monthly in
arrears. |
7 |
For
Class C shares, the Selling Firm receives Rule 12b-1 fees in the first
year as a percentage of the amount invested. After the first year, the
Selling Firm receives Rule 12b-1
fees as a percentage of average daily net eligible assets paid monthly in
arrears. |
8 |
The
Distributor may make a one-time payment at time of initial purchase out of
its own resources to a Selling Firm that sells Class I shares of the
funds. This payment may be up
to 0.15% of the amount invested. |
CDSC
revenues collected by the Distributor may be used to pay Selling Firm
commissions when there is no initial sales charge.
NET
ASSET VALUE
The NAV for
each class of shares of each fund is normally determined once daily as of the
close of regular trading on the NYSE (typically 4:00 p.m. Eastern
time, on each business day that the NYSE is open). Each class of shares of each
fund has its own NAV, which is computed by dividing the total assets,
minus liabilities, allocated to each share class by the number of fund shares
outstanding for that class. The current
NAV of a fund is available on our
website at jhinvestments.com.
For
All Funds Except Money Market Fund
In case of
emergency or other disruption resulting in the NYSE not opening for trading or
the NYSE closing at a time other than the regularly scheduled close, the
NAV may be determined as of the regularly scheduled close of the NYSE pursuant
to the funds’ Valuation Policies and Procedures. The time at which
shares and transactions are priced and until which orders are accepted may vary
to the extent permitted by the SEC and applicable regulations.
On holidays or other days when the NYSE is closed, the NAV is not calculated and
the fund does not transact purchase or redemption requests.
Trading of securities that are primarily listed on foreign exchanges may take
place on weekends and U.S. business holidays on which the fund’s NAV
is not calculated. Consequently, the fund’s portfolio securities may trade and
the NAV of the fund’s shares may be significantly affected on days when a
shareholder will not be able to purchase or redeem shares of the
fund.
Portfolio
securities are valued by various methods that are generally described below.
Portfolio securities also may be fair valued by the funds’ Pricing Committee
in certain instances pursuant to procedures established by the Trustees. Equity
securities are generally valued at the last sale price or, for certain
markets, the official closing price as of the close of the relevant exchange.
Securities not traded on a particular day are valued using last available
bid prices. A security that is listed or traded on more than one exchange is
typically valued at the price on the exchange where the security was
acquired or most likely will be sold. In certain instances, the Pricing
Committee may determine to value equity securities using prices obtained
from
another exchange or market if trading on the exchange or market on which prices
are typically obtained did not open for trading as scheduled, or if trading
closed earlier than scheduled, and trading occurred as normal on another
exchange or market. Equity securities traded principally in foreign markets are
typically valued using the last sale price or official closing price in the
relevant exchange or market, as adjusted by an independent pricing vendor to
reflect fair value. On any day a foreign market is closed and the NYSE is open,
any foreign securities will typically be valued using the last price or
official closing price obtained from the relevant exchange on the prior business
day adjusted based on information provided by an independent
pricing vendor to reflect fair value. Debt obligations are typically valued
based on evaluated prices provided by an independent pricing vendor. The
value of securities denominated in foreign currencies is converted into U.S.
dollars at the exchange rate supplied by an independent
pricing
vendor. Forward foreign currency contracts are valued at the prevailing forward
rates which are based on foreign currency exchange spot rates and forward
points supplied by an independent pricing vendor. Exchange-traded options are
valued at the mid-price of the last quoted bid and ask prices.
Futures contracts whose settlement prices are determined as of the close of the
NYSE are typically valued based on the settlement price while other
futures contracts are typically valued at the last traded price on the exchange
on which they trade. Foreign equity index futures that trade in the electronic
trading market subsequent to the close of regular trading may be valued at the
last traded price in the electronic trading market as of the close of
the NYSE, or may be fair valued based on fair value adjustment factors provided
by an independent pricing vendor in order to adjust for events that may
occur between the close of foreign exchanges or markets and the close of the
NYSE. Swaps and unlisted options are generally valued using evaluated
prices obtained from an independent pricing vendor. Shares of other open-end
investment companies that are not ETFs (underlying funds) are valued
based on the NAVs of such underlying funds.
Pricing
vendors may use matrix pricing or valuation models that utilize certain inputs
and assumptions to derive values, including transaction data, broker-dealer
quotations, credit quality information, general market conditions, news, and
other factors and assumptions. The fund may receive different
prices when it sells odd-lot positions than it would receive for sales of
institutional round lot positions. Pricing vendors generally value securities
assuming orderly transactions of institutional round lot sizes, but a fund may
hold or transact in such securities in smaller, odd lot sizes.
The Pricing
Committee engages in oversight activities with respect to pricing vendors, which
includes, among other things, monitoring significant or unusual
price fluctuations above predetermined tolerance levels from the prior day,
back-testing of pricing vendor prices against actual trades, conducting
periodic due diligence meetings and reviews, and periodically reviewing the
inputs, assumptions and methodologies used by these vendors.
Nevertheless, market quotations, official closing prices, or information
furnished by a pricing vendor could be inaccurate, which could lead to
a security
being valued incorrectly.
If market
quotations, official closing prices, or information furnished by a pricing
vendor are not readily available or are otherwise deemed unreliable or not
representative of the fair value of such security because of market- or
issuer-specific events, a security will be valued at its fair value as
determined
in good faith by the Trustees. The Trustees are assisted in their responsibility
to fair value securities by the funds’ Pricing Committee, and the actual
calculation of a security’s fair value may be made by the Pricing Committee
acting pursuant to the procedures established by the Trustees. In certain
instances, therefore, the Pricing Committee may determine that a reported
valuation does not reflect fair value, based on additional information
available or other factors, and may accordingly determine in good faith the fair
value of the assets, which may differ from the reported valuation.
Fair value
pricing of securities is intended to help ensure that a fund’s NAV reflects the
fair market value of the fund’s portfolio securities as of the close
of regular
trading on the NYSE (as opposed to a value that no longer reflects market value
as of such close), thus limiting the opportunity for aggressive
traders or market timers to purchase shares of the fund at deflated prices
reflecting stale security valuations and promptly sell such shares at a gain,
thereby diluting the interests of long term shareholders. However, a security’s
valuation may differ depending on the method used for determining
value, and no assurance can be given that fair value pricing of securities will
successfully eliminate all potential opportunities for such trading
gains.
The use of
fair value pricing has the effect of valuing a security based upon the price a
fund might reasonably expect to receive if it sold that security in an orderly
transaction between market participants, but does not guarantee that the
security can be sold at the fair value price. Further, because of the
inherent uncertainty and subjective nature of fair valuation, a fair valuation
price may differ significantly from the value that would have been used
had a
readily available market price for the investment existed and these differences
could be material.
Regarding a
fund’s investment in an underlying fund that is not an ETF, which (as noted
above) is valued at such underlying fund’s NAV, the prospectus for such
underlying fund explains the circumstances and effects of fair value pricing for
that underlying fund.
For
Money Market Fund
Money
Market Fund operates as a government money market fund, as defined in Rule 2a-7
under the 1940 Act, and, accordingly, uses the amortized cost
valuation method, which approximates market value, to value its portfolio
securities. The amortized cost method involves valuing a security at its
cost on the
date of purchase and thereafter assuming a constant amortization to maturity of
the difference between the principal amount due at maturity
and the cost of the security to the fund.
The Board
has established procedures designed to stabilize, to the extent reasonably
possible, the fund’s price per share as computed for the purpose of sales
and redemptions at $1.00. The procedures direct the Advisor to establish
procedures that will allow for the monitoring of the propriety of the
continued
use of amortized cost valuation to maintain a constant NAV of $1.00 for the
fund. The procedures also direct the Advisor to determine NAV based upon
available market quotations (“Shadow Pricing”), pursuant to which daily market
values for securities held by the fund will be obtained and compared to
such securities’ amortized cost values to ensure that the amortized cost values
are representative of fair market value pursuant to the funds’
procedures. The fund shall value daily: (a) all portfolio instruments for which
market quotations are readily available at market; and (b) all portfolio
instruments for which market quotations are not readily available or are not
obtainable from a pricing service, at their fair value as determined
in good faith by the Board (the actual calculations, however, may be made by
persons acting pursuant to the direction of the Board.) If the fair value
of a security needs to be determined, the Pricing
Committee will
provide determinations, in accordance with procedures and methods established
by the Board, of the fair value of securities held by the fund.
In
determining market quotations that the fund may use for purposes of Shadow
Pricing, pricing vendors may use matrix pricing or models that utilize
certain
inputs and assumptions to derive market quotations, including transaction data,
credit quality information, general market conditions, news, and other
factors and assumptions. Special Shadow Pricing considerations may apply with
respect to the fund’s “odd-lot” positions, as the fund may
receive
different prices when it sells such positions than it would receive for sales of
institutional round lot positions. Pricing vendors generally determine
market quotations for securities assuming orderly transactions of institutional
round lot sizes, but the fund may transact in such securities in smaller,
odd lot sizes.
The Pricing
Committee engages in oversight activities with respect to the fund’s pricing
vendors, which includes, among other things, monitoring significant
or unusual price fluctuations above predetermined tolerance levels from the
prior day, back-testing of pricing vendor prices against actual trades,
conducting periodic due diligence meetings and reviews, and periodically
reviewing the inputs, assumptions and methodologies used by these vendors.
Nevertheless, market quotations, official closing prices, or information
furnished by a pricing vendor could be inaccurate, which could lead to
a security
being valued incorrectly.
In the
event that the deviation from the amortized cost exceeds 0.30% of $1, or $0.003,
per share in NAV, the Advisor shall promptly call a special meeting of
the Board to determine what, if any, action should be initiated. Where the
Trustees believe the extent of any deviation from the fund’s amortized
cost NAV may result in material dilution or other unfair results to investors or
existing shareholders, they shall take the action they deem appropriate
to eliminate or reduce to the extent reasonably practical such dilution or
unfair results. The actions that may be taken by the Board include,
but are not limited to:
• |
redeeming
shares in kind; |
• |
selling
portfolio instruments prior to maturity to realize capital gains or losses
or to shorten the average portfolio maturity of the
fund; |
• |
withholding
or reducing dividends; |
• |
utilizing
a NAV based on available market quotations;
or |
• |
investing
all cash in instruments with a maturity on the next business
day. |
In certain
extraordinary circumstances, the fund may, with Board approval, reduce the
number of shares outstanding by redeeming proportionately from
shareholders, such number of full and fractional shares as is necessary to
maintain the NAV at $1.00 for the fund. Such reduction in the number
of
outstanding fund shares would not reduce the value of a shareholder’s holdings
in the fund, and as a result, no monetary compensation would be paid for
the redemption.
Since a
dividend is declared to shareholders each time net asset value is determined,
the NAV per share of each class of the fund will normally remain constant at
$1.00. There is no assurance that the fund can maintain the $1.00 NAV. Monthly,
any increase in the value of a shareholder’s investment in either
class from dividends is reflected as an increase in the number of shares of such
class in the shareholder’s account or is distributed as cash if a
shareholder has so elected.
It is
expected that the fund’s net income will be positive each time it is determined.
However, if because of a sudden rise in interest rates or for any other
reason the net income of the fund determined at any time is a negative amount,
the fund will offset the negative amount against income accrued during the
month for each shareholder account. If at the time of payment of a distribution
such negative amount exceeds a shareholder’s portion of accrued
income, the fund may reduce the number of its outstanding shares by treating the
shareholder as having contributed to the capital of the fund that number
of full or fractional shares which represents the amount of excess. By investing
in any class of shares of the fund, shareholders are deemed to
have agreed to make such a contribution. This procedure permits the fund to
maintain its NAV at $1.00.
If, in the
view of the Trustees, it is inadvisable to continue the practice of maintaining
the fund’s NAV at $1.00, the Trustees reserve the right to alter the
procedures for determining NAV. The fund will notify shareholders of any such
alteration.
POLICY
REGARDING DISCLOSURE OF PORTFOLIO HOLDINGS
The Board
has adopted a Policy Regarding Disclosure of Portfolio Holdings, to protect the
interests of the shareholders of the funds and to address potential
conflicts of interest that could arise between the interests of shareholders and
the interests of the Advisor, or the interests of the funds’ subadvisors,
principal underwriter or affiliated persons of the Advisor, subadvisors or
principal underwriter. The Trusts’ general policy with respect to the release
of a fund’s portfolio holdings to unaffiliated persons is to do so only in
limited circumstances and only to provide nonpublic information regarding
portfolio holdings to any person, including affiliated persons, on a “need to
know” basis and, when released, to release such information only as
consistent with applicable legal requirements and the fiduciary duties owed to
shareholders. Each Trust applies its policy uniformly to all potential
recipients
of such information, including individual and institutional investors,
intermediaries, affiliated persons of a fund, and all third party service
providers
and rating agencies.
Each Trust
posts to its website at jhinvestments.com complete
portfolio holdings a number of days after each calendar month end as described
in the Prospectus.
Each fund (other than
Money Market Fund) also
discloses its complete portfolio holdings information as of the end of the third
month of every
fiscal quarter on Form N-PORT within 60 days of the end of the fiscal quarter
and on Form N-CSR within 70 days after the second and fourth quarter
ends of the Trust’s fiscal year. The portfolio holdings information in Form
N-PORT is not required to be delivered to shareholders, but is made public
through the SEC electronic filings. Shareholders receive either complete
portfolio holdings information or summaries of a fund’s portfolio holdings
with their annual and semiannual reports.
For Money
Market Fund, the following information is posted on the website no later than
the fifth business day after month end: weighted average maturity;
weighted average life; and complete portfolio holdings by investment category
and other related information. The fund reports certain information
to the SEC monthly on Form N-MFP, including the fund’s portfolio holdings and
other pricing information, which are made public immediately
upon the report’s filing with the SEC. If certain material events occur
regarding Money Market Fund’s portfolio holdings or its pricing,
including
actions the Board may take to address these events, the fund will be required to
file a report with the SEC concerning these events and post this
information on the fund’s website.
Firms that
provide administrative, custody, financial, accounting, legal or other services
to a fund may receive nonpublic information about a fund’s portfolio
holdings for purposes relating to their services. Additionally, portfolio
holdings information
for a fund that is not publicly available will be released
only pursuant to the exceptions described in the Policy Regarding Disclosure of
Portfolio Holdings. A fund’s material nonpublic holdings information
may be provided to the following unaffiliated persons as part of the investment
activities of the fund: entities that, by explicit agreement, are
required to maintain the confidentiality of the information disclosed; rating
organizations, such as Moody’s, S&P, Fitch, Morningstar and Lipper,
Vestek
(Thomson Financial) or other entities for the purpose of compiling reports and
preparing data; proxy voting services for the purpose of voting proxies;
entities providing computer software; courts (including bankruptcy courts) or
regulators with jurisdiction over the relevant Trust and its affiliates;
and institutional traders to assist in research and trade execution. Exceptions
to the portfolio holdings release policy can be approved only by the
Trusts’ CCO or the CCO’s duly authorized delegate after considering: (a) the
purpose of providing such information; (b) the procedures that will be used to
ensure that such information remains confidential and is not traded upon; and
(c) whether such disclosure is in the best interest of the shareholders.
As of March
31, 2022, the
entities that may receive information described in the preceding paragraph, and
the purpose for which such information is disclosed,
are as presented in the table below. Portfolio holdings information is provided
as frequently as daily with a one-day lag.
|
|
Entity
Receiving Portfolio Information |
Disclosure
Purpose |
Abel
Noser (f.k.a.Trade Informatics), (f.k.a. SJ Levinson) |
Trade
Execution Analysis |
Accenture |
Operational
Functions |
Bloomberg
L.P. |
Order
Management & Fixed Income Attribution & Master Data Management
/ Pricing / Portfolio Analysis / Reporting Agency |
Broadridge
Financial Solutions |
Proxy
Voting, Software Vendor |
Brown
Brothers Harriman & Co. |
Reconciliation
/ Corporate Actions / Operational Functions Securities Lending |
Capital
Institutional Services (CAPIS) |
Broker
Dealer / Transition Services / Commission
Recapture |
|
|
Entity
Receiving Portfolio Information |
Disclosure
Purpose |
Charles
River |
Trading |
Citibank |
Securities
Lending |
Confluence
Technologies |
Consulting |
DataLend |
Securities
Lending Analytics |
DG3 |
Financial
Reporting, Type Setting |
Donnelley
Financial Solutions |
Financial
Reporting |
DUCO |
Reconciliation
services |
Dynamo
Software |
Fair
Value and Private Transactions Support |
Electra
Information Systems |
Reconciliation |
Ernst
& Young |
Tax
Reporting |
ETF
Global |
Holdings
Analytics |
FactSet |
Risk
Management / Attribution / Portfolio Analysis tool /
Performance |
Foley
Hoag |
Foreign
Currency Trade Review |
FX
Transparency |
FX
Trade Execution Analysis / Transactions |
GainsKeeper |
Wash
Sales / REIT Data |
Glass
Lewis |
Proxy
Voting |
Institutional
Shareholder Services (ISS) |
Proxy
Voting Service / Class Action Services |
Interactive
Data |
Pricing |
JPMorgan
Chase |
Derivative
Broker |
Law
Firm of Davis and Harman |
Development
of Revenue Ruling |
Lipper |
Ratings
/ Survey Service |
Markit |
Service
Provider- Electronic Data Management / Operational
Functions |
Milestone |
Service
Provider-Valuation Oversight |
Morningstar,
Inc. |
Ratings/Surveys
Service |
MSCI
Inc. |
Analytics |
|
|
Entity
Receiving Portfolio Information |
Disclosure
Purpose |
Northern
Trust Co. |
Service
Provider / Back Office Functions |
PricewaterhouseCoopers
LLP |
Audit |
RSM
US LLP |
Consulting |
Russell
Implementation Services |
Transition
Services |
SunGard |
Securities
Lending Analytics |
SS&C
Advent |
Cash
& Securities Reconciliation |
SS&C
Sylvan |
Performance |
Star
Compliance |
Transactions |
State
Street |
Derivative
Broker / Service Provider-IBOR / Operational Functions |
SWIFT |
Accounting
& Custody Messaging |
Virtu
Analytics, LLC |
Trade
Execution Analysis |
Wolters
Kluwer |
Tax /
Audit |
The CCO is
required to pre-approve the disclosure of nonpublic information regarding a
fund’s portfolio holdings to any affiliated persons of the relevant
Trust. The CCO will use the following three
considerations before
approving disclosure of a fund’s nonpublic information to affiliated
persons:
(a) the
purpose of providing such information; (b) the procedures that will be used to
ensure that such information remains confidential and is not traded
upon; and (c) whether such disclosure is in the best interest of the
shareholders.
The CCO
shall report to the Board whenever additional disclosures of a fund’s portfolio
holdings are approved. The CCO’s report shall be presented
at
the Board
meeting following such approval.
When the
CCO believes that the disclosure of a fund’s nonpublic information to an
unaffiliated person presents a potential conflict of interest between
the
interest of the shareholders and the interest of affiliated persons of the
relevant Trust, the CCO shall refer the potential conflict to the Board. The
Board shall
then permit such disclosure of a fund’s nonpublic information only if in its
reasonable business judgment it concludes that such disclosure will be in
the best interests of the relevant Trust’s shareholders.
The receipt
of compensation by a fund, the Advisor, a subadvisor or an affiliate as
consideration for disclosing a fund’s nonpublic portfolio holdings information
is not deemed a legitimate business purpose and is strictly
forbidden.
Registered
investment companies and separate accounts that are advised or subadvised by the
funds’ subadvisors may have investment objectives and
strategies and, therefore, portfolio holdings, that potentially are similar to
those of a fund. Neither such registered investment companies and separate
accounts nor the funds’ subadvisors are subject to the Trusts’ Policy Regarding
Disclosure of Portfolio Holdings, and may be subject to different
portfolio holdings disclosure policies. The funds’ subadvisors may not, and the
Trusts’ Board cannot, exercise control over policies applicable to separate
subadvised funds and accounts.
In
addition, the Advisor or the funds’ subadvisors may receive compensation for
furnishing to separate account clients (including sponsors of wrap accounts)
model portfolios, the composition of which may be similar to those of a
particular fund. Such clients have access to their portfolio holdings
and are not
subject to the Trusts’ Policy Regarding Disclosure of Portfolio Holdings. In
general, the provision of portfolio management services and/or model
portfolio information to wrap program sponsors is subject to contractual
confidentiality provisions that the sponsor will only use such information
in connection with the program, although there can be no assurance that this
would be the case in an agreement between any particular fund
subadvisor that is not affiliated with the Advisor and a wrap account sponsor.
Finally, the Advisor or the funds’ subadvisors may distribute to investment
advisory clients analytical information concerning a model portfolio, which
information may correspond substantially to the characteristics of a
particular fund’s portfolio, provided that the applicable fund is not identified
in any manner as being the model portfolio.
The
potential provision of information in the various ways discussed in the
preceding paragraph is not subject to the Trusts’ Policy Regarding Disclosure
of Portfolio Holdings, as discussed above, and is not deemed to be the
disclosure of a fund’s nonpublic portfolio holdings information. As a
result of
the funds’ inability to control the disclosure of information as noted above,
there can be no guarantee that this information would not be used in a way
that adversely impacts a fund. Nonetheless, each fund has oversight processes in
place to attempt to minimize this risk.
SALES
CHARGES ON CLASS A AND CLASS C SHARES
Class A
shares of Money Market Fund are available with no front-end sales charge. For
all other funds, Class A shares are offered at a price equal to their NAV
plus a sales charge imposed at the time of purchase (the “initial sales
charge”). Class C shares of the applicable funds are offered at a price
equal to
their NAV plus a sales charge imposed on a contingent deferred basis (the
“contingent deferred sales charge” or “CDSC”).
The
Trustees reserve the right to change or waive a fund’s minimum investment
requirements and to reject any order to purchase shares (including purchase by
exchange) when in the judgment of the Advisor such rejection is in the fund’s
best interest.
The
availability of certain sales charge waivers and discounts will depend on
whether you purchase your shares directly from the funds or through a
financial
intermediary. Intermediaries may have different policies and procedures
regarding the availability of front-end sales charge waivers or CDSC
waivers
(See Appendix 1 to the Prospectus, “Intermediary sales charge waivers,” which
includes information about specific sales charge waivers applicable
to the intermediaries identified therein).
The sales
charges applicable to purchases of Class A shares of a fund are described in the
Prospectus. Please note, these waivers are distinct from those
described in Appendix 1 to the Prospectus, “Intermediary sales charge waivers,”
and are not intended to describe the sales load cost structure of, or be
exclusive to, any particular intermediary. Methods of obtaining reduced sales
charges referred to generally in the Prospectus are described in detail
below. In calculating the sales charge applicable to current purchases of Class
A shares of a fund, the investor is entitled to accumulate current purchases
with the current offering price of the Class A, Class C, Class I, Class R6, or
all Class R shares of the John Hancock funds owned by the investor
(see “Combination and Accumulation Privileges” below).
In order to
receive the reduced sales charge, the investor must notify his or her financial
professional and/or the financial professional must notify the funds’
transfer agent, John Hancock Signature Services, Inc. (“Signature Services”) at
the time of purchase of the Class A shares, about any other John Hancock
funds owned by the investor, the investor’s spouse and their children under the
age of 21 (see “Combination and Accumulation Privileges” below).
This
includes investments held in an IRA, including those held at a broker or
financial professional other than the one handling the
investor’s current purchase. Additionally, individual purchases by a trustee(s)
or other fiduciary(ies) also may be aggregated if the investments
are for a single trust estate or for a group retirement plan. Assets held within
a group retirement plan may not be combined
with any assets held by those same participants outside of the
plan.
John
Hancock will credit the combined value, at the current offering price, of all
eligible accounts to determine whether an investor qualifies for a reduced
sales charge on the current purchase. Signature Services will automatically link
certain accounts registered in the same client name, with the same
taxpayer identification number, for the purpose of qualifying an investor for
lower initial sales charge rates. An investor must notify Signature Services
and his or her broker-dealer (financial professional) at the time of purchase of
any eligible accounts held by the investor’s spouse or children under 21 in
order to ensure these assets are linked to the investor’s accounts. Also, see
Appendix 1 to the Prospectus, “Intermediary sales charge waivers,”
for more information regarding the availability of sales charge waivers through
particular intermediaries.
Without
Sales Charges. Class A
shares may be offered without a front-end sales charge or CDSC to various
individuals and institutions as follows:
• |
A
Trustee or officer of the Trust; a director or officer of the Advisor and
its affiliates, subadvisors or Selling Firms; employees or sales
representatives of
any of the foregoing; retired officers, employees or directors of any of
the foregoing; a member of the immediate family (spouse, child,
grandparent,
grandchild, parent, sibling, mother-in-law, father-in-law,
daughter-in-law, son-in-law, brother-in-law, sister-in-law, niece, nephew
and same
sex domestic partner; “Immediate Family”) of any of the foregoing; or any
fund, pension, profit sharing or other benefit plan for the individuals
described
above. |
• |
A
broker, dealer, financial planner, consultant or registered investment
advisor that uses fund shares in certain eligible retirement platforms,
fee-based
investment products or services made available to their
clients. |
• |
Financial
intermediaries who offer shares to self-directed investment brokerage
accounts that may or may not be charged a transaction fee. Also,
see
Appendix 1 to the Prospectus, “Intermediary sales charge waivers,” for
more information regarding the availability of sales charge waivers
through
particular intermediaries. |
• |
Individuals
transferring assets held in a SIMPLE IRA, SEP, or SARSEP invested in John
Hancock funds directly to an IRA. |
• |
Individuals
converting assets held in an IRA, SIMPLE IRA, SEP, or SARSEP invested in
John Hancock funds directly to a Roth
IRA. |
• |
Individuals
recharacterizing assets from an IRA, Roth IRA, SEP, SARSEP or SIMPLE IRA
invested in John Hancock funds back to the original account type
from which it was converted. |
• |
Terminating
participants in a pension, profit sharing or other plan qualified under
Section 401(a) of the Code, or described in Section 457(b) of the
Code,
(i) that is funded by certain John Hancock group annuity contracts, (ii)
for which John Hancock Trust Company serves as trustee or custodian,
or
(iii) the trustee or custodian of which has retained RPS as a service
provider, rolling over assets (directly or within 60 days after
distribution) from such
a plan (or from a John Hancock Managed IRA or John Hancock Annuities IRA
into which such assets have already been rolled over) to a John
Hancock
custodial IRA or John Hancock custodial Roth IRA that invests in John
Hancock funds, or the subsequent establishment of or any rollover
into
a new John Hancock fund account by such terminating participants and/or
their Immediate Family (as defined above), including subsequent
investments
into such accounts and which are held directly at John Hancock funds or at
the PFS Financial Center. |
• |
Participants
in a terminating pension, profit sharing or other plan qualified under
Section 401(a) of the Code, or described in Section 457(b) of the
Code
(the assets of which, immediately prior to such plan’s termination, were
(a) held in certain John Hancock group annuity contracts, (b) in trust
or
custody by John Hancock Trust Company, or (c) by a trustee or custodian
which has retained John Hancock RPS as a service provider, but have
been
transferred from such contracts or trust funds and are held either: (i) in
trust by a distribution processing organization; or (ii) in a custodial
IRA or
custodial Roth IRA sponsored by an authorized third party trust company
and made available through John Hancock), rolling over assets (directly
or
within 60 days after distribution) from such a plan to a John Hancock
custodial IRA or John Hancock custodial Roth IRA that invests in John
Hancock
funds, or the subsequent establishment of or any rollover into a new John
Hancock fund account by such participants and/or their Immediate
Family (as defined above), including subsequent investments into such
accounts and which are held directly at John Hancock funds or at
the
PFS Financial Center. |
• |
Participants
actively enrolled in a John Hancock RPS plan account rolling over or
transferring assets into a new John Hancock custodial IRA or John
Hancock
custodial Roth IRA that invests in John Hancock funds through John Hancock
PFS (to the extent such assets are otherwise prohibited from rolling
over or transferring into the John Hancock RPS plan account), including
subsequent investments into such accounts and which are held directly
at John Hancock funds or at the John Hancock PFS Financial
Center. |
• |
Individuals
rolling over assets held in a John Hancock custodial 403(b)(7) account
into a John Hancock custodial IRA
account. |
• |
Individuals
exchanging shares held in an eligible fee-based program for Class A
Shares, provided however, subsequent purchases in Class A Shares
will
be subject to applicable sales charges. |
• |
Former
employees/associates of John Hancock, its affiliates or agencies rolling
over (directly or indirectly within 60 days after distribution) to a new
John
Hancock custodial IRA or John Hancock custodial Roth IRA from the John
Hancock Employee Investment-Incentive Plan (TIP), John Hancock
Savings
Investment Plan (SIP) or the John Hancock Pension Plan and such
participants and their Immediate Family (as defined above) subsequently
establishing
or rolling over assets into a new John Hancock account through John
Hancock PFS, including subsequent investments into such accounts
and which are held directly at John Hancock funds or at the John Hancock
PFS Financial Center. |
• |
Participants
in group retirement plans that are eligible and permitted to purchase
Class A shares. This waiver is contingent upon the group retirement
plan being in a recordkeeping arrangement and does not apply to group
retirement plans transacting business with a fund through a brokerage
relationship in which sales charges are customarily imposed. In addition,
this waiver does not apply to a group retirement plan that leaves
its
current recordkeeping arrangement and subsequently transacts business with
the fund through a brokerage relationship in which sales charges
are
customarily imposed. Whether a sales charge waiver is available to your
group retirement plan through its record keeper depends upon the
policies
and procedures of your intermediary. Please consult your financial
professional for further information. |
• |
Investors
who acquired their Class A shares as a result of the reorganization of FMA
Small Company Portfolio, Rainier Large Cap Growth Equity Portfolio,
or Robeco Boston Partners Large Cap Value Fund, as applicable, may make
additional purchases without a sales charge to their accounts that
have continuously held fund shares since the date of the applicable
reorganization. An investor purchasing fund shares through a financial
institution
may no longer be eligible to purchase fund shares at NAV if the nature of
the investor’s relationship with and/or the services it receives
from
the financial institution changes. In such cases, such investors may be
required to hold their fund shares directly through Signature Services,
the
fund’s transfer agent, in order to maintain the privilege with respect to
future purchases. An investor should consult with his or her financial
professional
for further details. |
NOTE:
Rollover investments to Class A shares from assets withdrawn from SIMPLE 401(k),
TSA, 457, 403(b), 401(k), Money Purchase Pension Plan, Profit-Sharing
Plan, and any other qualified plans as described in Code Sections 401(a),
403(b), or 457 and not specified above as waiver-eligible, will be subject
to applicable sales charges.
• |
A
member of a class action lawsuit against insurance companies who is
investing settlement proceeds. |
• |
Retirement
plans investing through the PruSolutionSM
program. |
In-Kind
Re-Registrations. A
shareholder who has previously paid a sales charge, withdraws funds via a
tax-reportable transaction from one John Hancock
fund account and reregisters those assets directly to another John Hancock fund
account, without the assets ever leaving the John Hancock Fund
Complex, may do so without paying a sales charge. The beneficial owner must
remain the same, i.e., in-kind.
NOTE:
Rollover investments to Class A shares from assets withdrawn from SIMPLE 401(k),
TSA, 457, 403(b), 401(k), Money Purchase Pension Plan, Profit-Sharing
Plan, and any other qualified plans as described in Sections 401(a), 403(b), or
457 of the Code are not eligible for this provision, and will be
subject to applicable sales charges.
Class A
shares also may be purchased without an initial sales charge in connection with
certain liquidation, merger or acquisition transactions involving
other investment companies or personal holding companies.
Reducing
Class A Sales Charges
Combination
and Accumulation Privileges. In
calculating the sales charge applicable to purchases of Class A shares made at
one time, the purchases
will be combined to reduce sales charges if made by an individual, his or her
spouse, and their children under the age of 21 when purchasing
securities in the following:
• |
his
or her own individual or their joint
account; |
• |
his
or her trust account of which one of the above persons is the grantor or
the beneficial owner; |
• |
a
Uniform Gift/Transfer to Minor Account or Coverdell Education Savings
Account (“ESA”) in which one of the above persons is the custodian or
beneficiary; |
• |
a
single participant retirement/benefit plan account, as long as it is
established solely for the benefit of the individual account
owner; |
• |
an
IRA, including traditional IRAs, Roth IRAs, and SEP IRAs;
and |
• |
his
or her sole proprietorship. |
Group
Retirement Plans, including 403(b)(7), Money Purchase Pension Plans,
Profit-Sharing Plans, SARSEPs, and Simple IRAs with multiple participants
may combine Class A share purchases to reduce their sales charge.
Individual
qualified and non-qualified investments can be combined to take advantage of
this privilege; however, assets held within a group retirement plan may
not be combined with any assets held by those same participants outside of the
plan.
Class A
investors also may reduce their Class A sales charge by taking into account not
only the amount being invested but also the current offering price of
all the Class A, Class C, Class I, Class R6, and all Class R shares of all funds
in the John Hancock Fund Complex already held by such persons. However,
Class A shares of John Hancock Money Market Fund, a series of John Hancock
Current Interest (the “Money Market Fund”), will be eligible for the
accumulation privilege only if the investor has previously paid a sales charge
on the amount of those shares. To receive a reduced sales charge, the
investor
must tell his or her financial professional or Signature Services at the time of
the purchase about any other John Hancock funds held by
that
investor, his or her spouse, and their children under the age of 21. Further
information about combined purchases, including certain restrictions on
combined
group purchases, is available from Signature Services or a Selling Firm’s
representative.
Group
Investment Program. Under the
Combination and Accumulation Privileges, all members of a group may combine
their individual purchases of Class A
shares to potentially qualify for breakpoints in the sales charge schedule. This
feature is provided to any group that: (1) has been in existence
for more than six months, (2) has a legitimate purpose other than the purchase
of fund shares at a discount for its members, (3) utilizes salary
deduction or similar group methods of payment, and (4) agrees to allow sales
materials of the funds in its mailings to its members at a reduced or no cost
to the Distributor.
Letter
of Intention. Reduced
Class A sales charges are applicable to investments made pursuant to an LOI,
which should be read carefully prior to its execution
by an investor. All investors have the option of making their investments over a
specified period of thirteen (13) months. An individual’s non-retirement
and qualified retirement plan investments can be combined to satisfy an LOI. The
retirement accounts eligible for combination include traditional
IRAs, Roth IRAs, Coverdell ESAs, SEPs, SARSEPs, and SIMPLE IRAs. Since some
assets are held in omnibus accounts, an investor wishing to count those
eligible assets towards a Class A purchase must notify Signature Services and
his or her financial professional of these holdings. The aggregate
amount of such an investment must be equal to or greater than a fund’s first
breakpoint level (generally $50,000 or $100,000 depending on the
specific fund) over a period of 13 months from the date of the LOI. Any shares
for which no sales charge was paid will not be credited as purchases
made under the LOI.
The sales
charge applicable to all amounts invested after an LOI is signed is computed as
if the aggregate amount intended to be invested had been invested
immediately. If such aggregate amount is not actually invested, the difference
in the sales charge actually paid and the sales charge that would have
been paid had the LOI not been in effect is due from the investor. In such
cases, the sales charge applicable will be assessed based on the amount
actually invested. However, for the purchases actually made within the specified
period of 13 months, the applicable sales charge will not be higher than
that which would have applied (including accumulations and combinations) had the
LOI been for the amount actually invested. The asset inclusion
criteria stated under the Combination and Accumulation Privilege applies to
accounts eligible under the LOI. If such assets exceed the LOI amount at
the conclusion of the LOI period, the LOI will be considered to have been
met.
The LOI
authorizes Signature Services to hold in escrow sufficient Class A shares
(approximately 5% of the aggregate) to make up any difference in sales
charges on the amount intended to be invested and the amount actually invested,
until such investment is completed within the 13-month period. At
that time, the escrowed shares will be released. If the total investment
specified in the LOI is not completed, the shares held in escrow may
be redeemed
and the proceeds used as required to pay such sales charge as may be due. By
signing the LOI, the investor authorizes Signature Services to
act as his or her attorney-in-fact to redeem any escrowed Class A shares and
adjust the sales charge, if necessary. An LOI does not constitute
a binding commitment by an investor to purchase, or by a fund to sell, any
additional Class A shares, and may be terminated at any time.
Deferred
Sales Charge on Class A and Class C Shares
Class A
shares of Money Market Fund are available with no front-end sales charge. For
all other funds, Class A
shares are available with no front-end sales
charge on investments of $1 million or more. Class C shares are purchased at NAV
without the imposition of an initial sales charge. In each of these
cases, the funds will receive the full amount of the purchase payment. Also, see
Appendix 1 to the Prospectus “Intermediary sales charge waivers,”
for more information regarding the availability of sales charge waivers through
particular intermediaries.
Contingent
Deferred Sales Charge. There is a
CDSC on any Class A shares upon which a commission or finder’s fee was paid that
are sold within one year of
purchase. Class C shares that are redeemed within one year of purchase will be
subject to a CDSC at the rates set forth in the applicable Prospectus
as a percentage of the dollar amount subject to the CDSC. The CDSC will be
assessed on an amount equal to the lesser of the current market
value or the original purchase cost of the Class A or Class C shares being
redeemed. No CDSC will be imposed on increases in account value above the
initial purchase prices or on shares derived from reinvestment of dividends or
capital gains distributions.
In
determining whether a CDSC applies to a redemption, the calculation will be
determined in a manner that results in the lowest possible rate being
charged. It
will be assumed that a shareholder’s redemption comes first from shares the
shareholder has held beyond the one-year CDSC redemption period for
Class A or Class C shares, or those the shareholder acquired through dividend
and capital gain reinvestment. For this purpose, the amount of any
increase in a share’s value above its initial purchase price is not subject to a
CDSC. Thus, when a share that has appreciated in value is redeemed
during the CDSC period, a CDSC is assessed only on its initial purchase
price.
When
requesting a redemption for a specific dollar amount, a shareholder should state
if proceeds to equal the dollar amount requested are required. If not
stated, only the specified dollar amount will be redeemed from the shareholder’s
account and the proceeds will be less any applicable CDSC.
With
respect to a CDSC imposed on a redemption of Class A shares, proceeds from the
imposition of a CDSC are paid to the Distributor and are used in whole or in
part by the Distributor to defray its expenses related to paying a commission or
finder’s fee in connection with the purchase at NAV of Class A shares
with a value of $1 million or more.
With
respect to a CDSC imposed on a redemption of Class C shares, proceeds from the
imposition of a CDSC are paid to the Distributor and are used in whole or in
part by the Distributor to defray its expenses related to providing
distribution-related services to the funds in connection with the sale of
Class C
shares, such as the payment of compensation to select Selling Firms for selling
Class C shares. The combination of the CDSC and the distribution
and service fees facilitates the ability of the funds to sell Class C shares
without a sales charge being deducted at the time of the purchase.
Waiver
of Contingent Deferred Sales Charge. The CDSC
will be waived on redemptions of Class A and Class C shares, unless stated
otherwise, in the
circumstances defined below:
For all
account types:
• |
Redemptions
of Class A shares made after one year from the inception date of a
retirement plan at John Hancock. |
• |
Redemptions
of Class A shares by retirement plans that invested through the
PruSolutionsSM
program. |
• |
Redemptions
made pursuant to a fund’s right to liquidate an account if the investor
owns shares worth less than the stated account minimum in the section
“Small accounts” in the Prospectus. |
• |
Redemptions
made under certain liquidation, merger or acquisition transactions
involving other investment companies or personal holding companies. |
• |
Redemptions
due to death or disability. (Does not apply to trust accounts unless trust
is being dissolved.) |
• |
Redemptions
made under the Reinstatement Privilege, as described in “Sales Charge
Reductions and Waivers” in the
Prospectus. |
• |
Redemption
of Class C shares made under a systematic withdrawal plan or redemptions
for fees charged by planners or advisors for advisory services,
as long as the shareholder’s annual redemptions do not exceed 12% of the
account value, including reinvested dividends, at the time the
systematic
withdrawal plan was established and 12% of the value of subsequent
investments (less redemptions) in that account at the time Signature
Services is notified. (Please note that this waiver does not apply to
systematic withdrawal plan redemptions of Class A shares that are
subject
to a CDSC). |
• |
Rollovers,
contract exchanges or transfers of John Hancock custodial 403(b)(7)
account assets required by Signature Services as a result of its
decision
to discontinue maintaining and administering 403(b)(7)
accounts. |
For
Retirement Accounts (such as traditional, Roth IRAs and Coverdell ESAs, SIMPLE
IRAs, SIMPLE 401(k), Rollover IRA, TSA, 457, 403(b), 401(k), Money
Purchase Pension Plan, Profit-Sharing Plan and other plans as described in the
Code) unless otherwise noted.
• |
Redemptions
made to effect mandatory or life expectancy distributions under the Code.
(Waiver based on required minimum distribution calculations
for John Hancock mutual fund IRA assets
only.) |
• |
Returns
of excess contributions made to these
plans. |
• |
Redemptions
made to effect certain distributions, as outlined in the following table,
to participants or beneficiaries from employer sponsored retirement
plans under sections 401(a) (such as Money Purchase Pension Plans and
Profit-Sharing Plan/401(k) Plans), 403(b), 457 and 408 (SEPs
and SIMPLE IRAs) of the Code. |
Please see
the following table for some examples.
|
|
|
|
|
|
Type
of Distribution |
401(a)
Plan (401(k), MPP,
PSP) & 457 |
403(b) |
Roth
IRA & Coverdell ESA |
IRA,
SEP IRA & Simple
IRA |
Non-retirement |
Death
or Disability |
Waived |
Waived |
Waived |
Waived |
Waived |
Over
70½ (or 72, in the case
of individuals for whom
the minimum distribution
requirements
begin at age
72) |
Waived |
Waived |
Waived1
|
Waived1
|
12%
of account value annually
in periodic payments |
Between
59½ and 70½
(or 72, in the case of
individuals for whom the
minimum distribution
requirements
begin at age
72) |
Waived |
Waived |
12%
of account value annually
in periodic payments |
Waived
for Life Expectancy
or 12% of account
value annually in
periodic payments |
12%
of account value annually
in periodic payments |
Under
59½ (Class C only) |
Waived
for annuity payments
(72t2) or
12%
of account value annually
in periodic payments |
Waived
for annuity payments
(72t) or 12%
of account value annually
in periodic payments |
12%
of account value annually
in periodic payments |
Waived
for annuity payments
(72t) or 12%
of account value annually
in periodic payments |
12%
of account value annually
in periodic payments |
Termination
of Plan |
Not
Waived |
Waived |
N/A |
N/A |
N/A |
Hardships |
Waived |
Waived |
N/A |
N/A |
N/A |
Qualified
Domestic Relations
Orders |
Waived |
Waived |
N/A |
N/A |
N/A |
Termination
of Employment
Before Normal
Retirement Age |
Waived |
Waived |
N/A |
N/A |
N/A |
|
|
|
|
|
|
Type
of Distribution |
401(a)
Plan (401(k), MPP,
PSP) & 457 |
403(b) |
Roth
IRA & Coverdell ESA |
IRA,
SEP IRA & Simple
IRA |
Non-retirement |
Return
of Excess |
Waived |
Waived |
Waived |
Waived |
N/A |
1 |
External
direct rollovers and transfer of assets are
excluded. |
2 |
Refers
to withdrawals from retirement accounts under Section 72(t) of the
Code. |
If a
shareholder qualifies for a CDSC waiver under one of these situations, Signature
Services must be notified at the time of redemption. The waiver will be
granted once Signature Services has confirmed that the shareholder is entitled
to the waiver.
SPECIAL
REDEMPTIONS
Although it
would not normally do so, each fund has the right to pay the redemption price of
its shares in whole or in part in portfolio securities as prescribed
by the Trustees. When a shareholder sells any securities received in a
redemption of fund shares, the shareholder will incur a brokerage charge. Any
such securities would be valued for the purposes of fulfilling such a redemption
request in the same manner as they are in computing the fund’s NAV.
Diversified
Real Assets Fund and Money Market Fund have, however, elected to be governed by
Rule 18f-1 under the 1940 Act. Under that rule, a
fund must redeem its shares for cash except to the extent that the redemption
payments to any shareholder during any 90-day period would exceed the
lesser of $250,000 or 1% of the fund’s NAV at the beginning of such
period.
Each Trust
has adopted Procedures Regarding Redemptions in Kind by Affiliates (the
“Procedures”) to facilitate the efficient and cost effective movement of
assets of a fund and other funds managed by the Advisor or its affiliates
(“affiliated funds”) in connection with certain investment and marketing
strategies. It is the position of the SEC that the 1940 Act prohibits an
investment company, such as each fund, from satisfying a redemption request
from a shareholder that is affiliated with the investment company by means of an
in-kind distribution of portfolio securities. However, under a no-action
letter issued by the SEC staff, a redemption in kind to an affiliated
shareholder is permissible provided certain conditions are met. The Procedures,
which are intended to conform to the requirements of this no-action letter,
allow for in-kind redemptions by fund and affiliated fund shareholders
subject to specified conditions, including that:
• |
the
distribution is effected through a pro rata distribution of securities of
the distributing fund or affiliated fund; |
• |
the
distributed securities are valued in the same manner as they are in
computing the fund’s or affiliated fund’s
NAV; |
• |
neither
the affiliated shareholder nor any other party with the ability and the
pecuniary incentive to influence the redemption in kind may select or
influence
the selection of the distributed securities;
and |
• |
the
Board, including a majority of the Independent Trustees, must determine on
a quarterly basis that any redemptions in kind to affiliated shareholders
made during the prior quarter were effected in accordance with the
Procedures, did not favor the affiliated shareholder to the detriment
of any other shareholder and were in the best interests of the fund and
the affiliated fund. |
Potential
Adverse Effects of Large Shareholder Transactions
A fund may
from time to time sell to one or more investors, including other funds advised
by the Advisor or third parties, a substantial amount of its shares, and
may thereafter be required to satisfy redemption requests by such shareholders.
The Advisor
and/or the subadvisor, as seed investors, may have
significant ownership in certain funds. The Advisor and subadvisor, as
applicable, face conflicts of interest when considering the effect of
redemptions
on any such funds and on other shareholders in deciding whether and when to
redeem its respective shares. Such sales
and redemptions may be very
substantial relative to the size of such fund. While it is not possible to
predict the overall effect of such sales and redemptions over time, such
transactions may adversely affect such fund’s performance to the extent that the
fund is required to invest cash received in connection with a sale or to sell
portfolio securities to facilitate a redemption at, in either case, a time when
the fund otherwise would not invest or sell. As a result, the fund may have
greater or lesser market exposure than would otherwise be the case. Such
transactions also may accelerate
the realization of capital gains or
increase a
fund’s transaction costs, which would detract from fund
performance.
A large
redemption could significantly reduce the assets of a fund, causing decreased
liquidity and, depending on any applicable expense caps and/or waivers, a
higher expense ratio. If a fund
is forced to sell portfolio securities that have appreciated in value, such
sales may accelerate the realization of taxable
income to shareholders if such sales of investments result in gains. If a fund
has difficulty selling portfolio securities in a timely manner to meet a
large redemption request, the fund may have to borrow money to do so. In such an
instance, the fund’s remaining shareholders would bear the costs of
such borrowings, and such costs could reduce the fund’s returns. In addition, a
large redemption could result in a fund’s current expenses being
allocated over a smaller asset base, leading to an increase in the fund’s
expense ratio and possibly resulting in the fund’s becoming too small to
be
economically viable.
Non-U.S.
market closures and redemptions. Market
closures during regular holidays in an applicable non-U.S. market that are not
holidays observed in
the U.S. market may prevent the fund from executing securities transactions
within the normal settlement period. Unforeseeable closures of
applicable non-U.S. markets may have a similar impact. During such closures, the
fund may be required to rely on other methods to satisfy shareholder
redemption requests, including the use of its line of credit, interfund lending
facility, redemptions in kind, or such other liquidity means or facilities
as the fund may have in place from time to time, or the delivery of redemption
proceeds may be extended beyond the normal settlement cycle.
ADDITIONAL
SERVICES AND PROGRAMS
Exchange
Privilege. Each Trust
permits exchanges of shares of any class of a fund for shares of the same class
of any other fund within the John Hancock
Fund Complex offering that same class at the time of the exchange. Class I,
Class R2, Class R4, Class R5, or Class R6 shareholders also may exchange
their shares for Class A shares of Money Market Fund. If a shareholder exchanges
into Class A shares of the Money Market Fund, any future exchanges
out of Money Market Fund Class A shares must be to the same share class from
which they were originally exchanged.
The
registration for both accounts involved must be identical. Identical
registration is determined by having the same beneficial owner on both
accounts
involved in the exchange.
Exchanges
between funds are based on their respective NAVs. No sales charge is imposed,
except on exchanges of Class A shares from Money Market Fund to
another John Hancock fund, if a sales charge has not previously been paid on
those shares. Shares acquired in an exchange will be subject to the CDSC
rate and holding schedule of the fund in which such shares were originally
purchased if and when such shares are redeemed. For Class C shares,
this will have no impact on shareholders because the CDSC rates and holding
schedules are the same for all Class C shares across the John Hancock
Fund Complex. For Class A shares, certain funds within the John Hancock Fund
Complex have different CDSC rates and holding schedules and
shareholders should review the Prospectus for funds with Class A shares before
considering an exchange. For purposes of determining the holding
period for calculating the CDSC, shares will continue to age from their original
purchase date.
If a
retirement plan exchanges its Class A account in its entirety from a John
Hancock fund that imposes a Class A CDSC to a non-John Hancock investment,
the one-year CDSC applies.
Each fund
reserves the right to require that previously exchanged shares (and reinvested
dividends) be in the fund for 90 days before a shareholder is permitted a
new exchange.
An exchange
of shares is treated as a redemption of shares of one fund and the purchase of
shares of another for federal income tax purposes. An exchange
may result in a taxable gain or loss. See “Additional Information Concerning
Taxes.”
Conversion
Privilege. Provided a
fund’s eligibility requirements are met, and to the extent the referenced share
class is offered by the fund, an investor in
the fund pursuant to a fee-based, wrap or other investment platform program of
certain firms, as determined by the fund, may be afforded an
opportunity to make a conversion of (i) Class A and/or Class C shares (not
subject to a CDSC) also owned by the investor in the same fund to Class I
shares or
Class R6 shares of the fund; or (ii) Class I shares also owned by the investor
in the same fund to Class R6 shares of the same fund. Investors that no
longer participate in a fee-based, wrap, or other investment platform program of
certain firms may be afforded an opportunity to make a
conversion
to Class A shares of the same fund. Class C shares may be converted to Class A
at the request of the applicable financial intermediary after the
expiration of the CDSC period, provided that the financial intermediary through
which a shareholder purchased or holds Class C shares has records
verifying that the Class C share CDSC period has expired and the position is
held in an omnibus or dealer-controlled account. The fund may in its sole
discretion permit a conversion of one share class to another share class of the
same fund in certain circumstances other than those described above.
In
addition, Trustees, employees of the Advisor or its affiliates, employees of the
subadvisor, members of the fund’s portfolio management team and the spouses
and children (under age 21) of the aforementioned, may make a conversion of
Class A or Class I shares also owned by the investor in the same fund
to Class R6 shares. If Class R6 shares are unavailable, such investors may make
a conversion of Class A shares in the same fund to Class I shares.
The
conversion of one share class to another share class of the same fund in the
particular circumstances described above, should not cause the investor to
realize taxable gain or loss. For further details, see “Additional Information
Concerning Taxes” for information regarding the tax treatment of such
conversions.
Systematic
Withdrawal Plan. Each Trust
permits the establishment of a Systematic Withdrawal Plan. Payments under this
plan represent proceeds arising
from the redemption of fund shares. Since the redemption price of fund shares
may be more or less than the shareholder’s cost, depending upon the
market value of the securities owned by a fund at the time of redemption, the
distribution of cash pursuant to this plan may result in realization
of gain or loss for purposes of federal, state and local income taxes. The
maintenance of a Systematic Withdrawal Plan concurrently with purchases
of additional shares of a fund could be disadvantageous to a shareholder because
of the initial sales charge payable on such purchases of Class A
shares, if
applicable, and the
CDSC imposed on redemptions of Class C shares and because redemptions are
taxable events. Therefore, a shareholder
should not purchase shares at the same time that a Systematic Withdrawal Plan is
in effect. Each fund reserves the right to modify or discontinue
the Systematic Withdrawal Plan of any shareholder on 30 days’ prior written
notice to such shareholder, or to discontinue the availability of such
plan in the future. The shareholder may terminate the plan at any time by giving
proper notice to Signature Services.
Monthly
Automatic Accumulation Program (“MAAP”). This
program is explained in a Prospectus that describes Class A or Class C shares.
The program, as
it relates to automatic investment checks, is subject to the following
conditions:
• |
The
investments will be drawn on or about the day of the month
indicated; |
• |
The
privilege of making investments through the MAAP may be revoked by
Signature Services without prior notice if any investment is not honored
by
the shareholder’s bank. The bank shall be under no obligation to notify
the shareholder as to the nonpayment of any checks;
and |
• |
The
program may be discontinued by the shareholder either by calling Signature
Services or upon written notice to Signature Services that is received
at least five (5) business days prior to the due date of any
investment. |
Reinstatement
or Reinvestment Privilege. If
Signature Services and the financial professional are notified prior to
reinvestment, a shareholder who has
redeemed fund shares may, within 120 days after the date of redemption,
reinvest, without payment of a sales charge any part of the redemption
proceeds in shares back into the same share class of the same John Hancock fund
and account from which it was removed, subject to the minimum
investment limit of that fund. The proceeds from the redemption of Class A
shares of a fund may be reinvested at NAV without paying a sales charge for
Class A shares of the fund. If a CDSC was paid upon a redemption, a shareholder
may reinvest the proceeds from this redemption at NAV in additional
shares of the same class, fund, and account from which the redemption was made.
The shareholder’s account will be credited with the amount of
any CDSC charged upon the prior redemption and the new shares will continue to
be subject to the CDSC. The holding period of the shares acquired
through reinvestment will, for purposes of computing the CDSC payable upon a
subsequent redemption, include the holding period of the redeemed
shares.
Redemption
proceeds that are otherwise prohibited from being reinvested in the same account
or the same fund may be invested in another account for the
same shareholder in the same share class of the same fund (or different John
Hancock fund if the original fund is no longer available) without paying a
sales charge. Any such reinvestment is subject to the minimum investment
limit.
A fund may
refuse any reinvestment request and may change or cancel its reinvestment
policies at any time.
A
redemption or exchange of fund shares is a taxable transaction for federal
income tax purposes even if the reinvestment privilege is exercised, and
any gain or
loss realized by a shareholder on the redemption or other disposition of fund
shares will be treated for tax purposes as described under the caption
“Additional Information Concerning Taxes.”
Section
403(b)(7) Accounts:
Section
403(b)(7) of the Code permits public school employers and employers of certain
types of tax-exempt organizations to establish for their eligible
employees custodial accounts for the purpose of providing for retirement income
for such employees. Treasury regulations impose certain conditions
on exchanges between one custodial account intended to qualify under Section
403(b)(7) (the “exchanged account”) and another contract or
custodial account intended to qualify under Section 403(b) (the “replacing
account”) under the same employer plan (a “Section 403(b) Plan”). Specifically,
the replacing account agreement must include distribution restrictions that are
no less stringent than those imposed under the exchanged
account agreement, and the employer must enter into an agreement with the
custodian (or other issuer) of the replacing account under which the
employer and the custodian (or other issuer) of the replacing account will from
time to time in the future provide each other with certain information.
Due to
Treasury regulations:
1 |
The
funds do not accept requests to establish new John Hancock custodial
403(b)(7) accounts intended to qualify as a Section 403(b)
Plan. |
2 |
The
funds do not accept requests for exchanges or transfers into John Hancock
custodial 403(b)(7) accounts (i.e., where the investor holds the
replacing
account). |
3 |
The
funds require certain signed disclosure documentation in the
event: |
○ |
A
shareholder established a John Hancock custodial 403(b)(7) account with a
fund prior to September 24, 2007; and |
○ |
A
shareholder directs the fund to exchange or transfer some or all of the
John Hancock custodial 403(b)(7) account assets to another custodial
403(b) contract or account (i.e., where the exchanged account is with the
fund). |
4 |
The
funds do not accept salary deferrals into custodial 403(b)(7)
accounts. |
In the
event that a fund does not receive the required documentation, and the fund is
nonetheless directed to proceed with the transfer, the transfer may be
treated as a taxable transaction.
PURCHASES
AND REDEMPTIONS THROUGH THIRD PARTIES
Shares of
the funds may be purchased or redeemed through certain Selling Firms. Selling
Firms may charge the investor additional fees for their services. A
fund will be deemed to have received a purchase or redemption order when an
authorized Selling Firm, or if applicable, a Selling Firm’s authorized
designee, receives the order. Orders may be processed at the NAV next calculated
after the Selling Firm receives the order. The Selling Firm must
segregate any orders it receives after the close of regular trading on the NYSE
and transmit those orders to the fund for execution at the NAV next
determined. Some Selling Firms that maintain network/omnibus/nominee accounts
with a fund for their clients charge an annual fee on the average net
assets held in such accounts for accounting, servicing, and distribution
services they provide with respect to the underlying fund shares. This fee is
paid by the Advisor, the fund and/or the Distributor.
Certain
accounts held on a fund’s books, known as omnibus accounts, contain the
investments of multiple underlying clients that are invested in shares of
the funds. These underlying client accounts are maintained by entities such as
financial intermediaries. Indirect investments in a John Hancock
fund through a financial intermediary such as, but not limited to: a
broker-dealer, a bank (including a bank trust department), an investment
advisor, a
record keeper or trustee of a retirement plan or qualified tuition plan or a
sponsor of a fee-based program that maintains an omnibus account
with a fund for trading on behalf of its customers, may be subject to
guidelines, conditions, services and restrictions that are different from
those
discussed in a fund’s Prospectus. These differences may include, but are not
limited to: (i) eligibility standards to purchase, exchange, and sell
shares
depending on that intermediary’s policies; (ii) availability of sales charge
waivers and fees; (iii) minimum and maximum initial and subsequent purchase
amounts; and (iv) unavailability of LOI privileges. With respect to the
availability of sales charge waivers and fees, and LOI privileges, see
Appendix 1
to the Prospectus, “Intermediary sales charge waivers.” Additional conditions
may apply to an investment in a fund,
and the
investment professional or intermediary may charge a transaction-based,
administrative or other fee for its services. These conditions and fees are in
addition to those
imposed by a fund and its affiliates.
DESCRIPTION
OF FUND SHARES
The
Trustees are responsible for the management and supervision of each Trust. Each
Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest of each fund or other series
of the Trust without par value. Under each Declaration of Trust, the
Trustees have the authority to create and classify shares of beneficial interest
in separate series and classes without further action by shareholders.
As of the date of this SAI, the Trustees have authorized shares of 22 series of
the Trusts. Additional series may be added in the future. The
Trustees also have authorized the issuance of 9 classes of shares of the funds,
designated as Class A, Class C, Class I, Class NAV, Class R2, Class R4, Class
R5, Class R6, and Class 1. Additional classes of shares may be authorized in the
future.
Each share
of each class of a fund represents an equal proportionate interest in the
aggregate net assets attributable to that class of the fund. Holders
of each
class of shares have certain exclusive voting rights on matters relating to
their respective distribution plan, if any. The different classes of a
fund may
bear different expenses relating to the cost of holding shareholder meetings
necessitated by the exclusive voting rights of any class of shares.
Dividends
paid by a fund, if any, with respect to each class of shares will be calculated
in the same manner, at the same time and on the same day and will be in
the same amount, except for differences resulting from the fact that: (i) the
distribution and service fees, if any, relating to each class of shares will
be borne exclusively by that class, and (ii) each class of shares will bear any
class expenses properly allocable to that class of shares. Similarly,
the NAV per share may vary depending on which class of shares is purchased. No
interest will be paid on uncashed dividend or redemption checks.
In the
event of liquidation, shareholders of each class are entitled to share pro rata
in the net assets of a fund that are available for distribution to these
shareholders.
Shares entitle their holders to one vote per share (and fractional votes for
fractional shares), are freely transferable and have no preemptive,
subscription or conversion rights. When issued, shares are fully paid and
non-assessable, except as set forth below.
Unless
otherwise required by the 1940 Act or the Declaration of Trust, each Trust has
no intention of holding annual meetings of shareholders. Trust shareholders
may remove a Trustee by the affirmative vote of at least two-thirds of the
relevant Trust’s outstanding shares and the Trustees shall promptly
call a meeting for such purpose when requested to do so in writing by the record
holders of not less than 10% of the outstanding shares of the Trust.
Shareholders may, under certain circumstances, communicate with other
shareholders in connection with a request for a special meeting of shareholders.
However, at any time that less than a majority of the Trustees holding office
were elected by the shareholders, the Trustees will call a special
meeting of shareholders for the purpose of electing Trustees.
Under
Massachusetts law, shareholders of a Massachusetts business trust could, under
certain circumstances, be held personally liable for acts or obligations
of such trust or a series thereof. However, each Declaration of Trust contains
an express disclaimer of shareholder liability for acts, obligations
or affairs of the relevant Trust. Each Declaration of Trust also provides for
indemnification out of the Trust’s assets for all losses and expenses of
any shareholder held personally liable by reason of being or having been a
shareholder. Each Declaration of Trust also provides that no series of
the relevant Trust shall be liable for the liabilities of any other series.
Furthermore, no series of a Trust shall be liable for the liabilities of any
other fund
within the John Hancock Fund Complex. Liability is therefore limited to
circumstances in which a fund itself would be unable to meet its obligations,
and the possibility of this occurrence is remote.
Each fund
reserves the right to reject any application that conflicts with the fund’s
internal policies or the policies of any regulatory authority. The Distributor
does not accept starter, credit card, or third party checks. All checks returned
by the post office as undeliverable will be reinvested at NAV in the fund
or funds from which a redemption was made or dividend paid. Information provided
on the account application may be used by the funds to verify the
accuracy of the information or for background or financial history purposes. A
joint account will be administered as a joint tenancy with right of
survivorship, unless the joint owners notify Signature Services of a different
intent. A shareholder’s account is governed by the laws of The Commonwealth
of Massachusetts. For telephone transactions, the transfer agent will take
measures to verify the identity of the caller, such as asking for name,
account number, Social Security, or other taxpayer ID number and other relevant
information. If appropriate measures are taken, the transfer
agent is not responsible for any losses that may occur to any account due to an
unauthorized telephone call. Also, for shareholders’ protection,
telephone redemptions are not permitted on accounts whose names or addresses
have changed within the past 30 days. Proceeds from telephone
transactions can be mailed only to the address of record.
Except as
otherwise provided, shares of a fund generally may be sold only to U.S.
citizens, U.S. residents, and U.S. domestic corporations, partnerships,
trusts or estates. For purposes of this policy, U.S. citizens and U.S. residents
must reside in the U.S. and U.S. domestic corporations, partnerships,
trusts, and estates must have a U.S. address of record.
The
Declaration of Trust of each
Trust also
provides that the Board may approve the merger of a relevant fund with an
affiliated fund without shareholder
approval, in accordance with the 1940 Act. This provision will permit the merger
of affiliated funds without shareholder approval in certain circumstances
to avoid incurring the expense of soliciting proxies when a combination does not
raise significant issues for shareholders. For example, this
provision would permit the combination of two small funds having the same
portfolio managers, the same investment objectives, and the same fee
structure
in order to achieve economies of scale and thereby reduce fund expenses borne by
shareholders. Such a merger will still require the Board (including
a majority of the Independent Trustees) to determine that the merger is in the
best interests of the combining funds and will not dilute the
interest of
existing shareholders. The Trustees would evaluate any and all information
reasonably necessary to make their determination and consider and give
appropriate weight to all pertinent factors in fulfilling their duty of care to
shareholders.
Shareholders
of an acquired fund will still be required to approve a combination that would
result in a change in a fundamental investment policy, a material
change to the terms of an advisory agreement, the institution of or an increase
in Rule 12b-1 fees, or when the board of the surviving fund does not
have a majority of Independent Trustees who were elected by its shareholders.
Under Massachusetts law, shareholder approval is not required
for fund mergers, consolidation, or sales of assets. Shareholder approval
nevertheless will be obtained for combinations of affiliated funds when
required by the 1940 Act. Shareholder approval also will be obtained for
combinations with unaffiliated funds when deemed appropriate by the Trustees.
Effective
January 22, 2016, the Board amended and restated in its entirety each
Declaration of Trust. The amendments to the Declaration of Trust include,
among other changes, provisions that: (i) clarify certain duties,
responsibilities, and powers of the Trustees; (ii) clarify that, other than as
provided
under federal securities laws, the shareholders may only bring actions involving
a fund derivatively; (iii) provide that any action brought by a shareholder
related to a fund will be brought in Massachusetts state or federal court, and
that, if a claim is brought in a different jurisdiction and subsequently
changed to a Massachusetts venue, the shareholder will be required to reimburse
the fund for such expenses; and (iv) clarify that shareholders
are not intended to be third-party beneficiaries of fund contracts. The
foregoing description of the Declaration of Trust is qualified in its
entirety by
the full text of the Declaration of Trust, effective as of January 22, 2016,
which is available by writing to the Secretary of the Trust at 200 Berkeley
Street, Boston, Massachusetts 02116, and also on the SEC’s and Secretary of the
Commonwealth of Massachusetts’ websites.
SAMPLE
CALCULATION OF MAXIMUM OFFERING PRICE
For
Money Market Fund
Class A and
Class C shares of Money Market Fund are sold at an offering price of $1.00 per
share without any initial sales charges.
For
All Funds Except Money Market Fund
Class A
shares are sold with a maximum initial sales charge of 5.00%. Class C shares are
sold at NAV without any initial sales charges and with a 1.00% CDSC
on shares redeemed within 12 months of purchase. Class I, Class NAV, Class R2,
Class R4, Class R5, Class R6, and Class 1 shares of each fund,
as applicable, are sold at NAV without any initial sales charges or CDSCs. The
following tables show the maximum offering price per share of each
class of each fund using the fund’s relevant NAV as of March 31, 2022.
|
|
|
|
Fund |
NAV
and Redemption Price per
Class A Share ($) |
Maximum
Sales Charge (5.00%
of offering price, unless otherwise
noted) ($) |
Maximum
Offering Price to Public ($) |
Disciplined
Value Fund |
24.55 |
1.29 |
25.84 |
Disciplined
Value Mid Cap Fund |
26.25 |
1.38 |
27.63 |
Diversified
Real Assets |
– |
– |
– |
Fundamental
Equity Income Fund1
|
– |
– |
– |
Global
Shareholder Yield Fund |
11.64 |
0.61 |
12.25 |
International
Growth Fund |
29.99 |
1.58 |
31.57 |
Mid
Cap Growth Fund |
17.26 |
0.91 |
18.17 |
Money
Market Fund |
1.00 |
0.00 |
1.00 |
U.S.
Growth Fund |
22.99 |
1.21 |
24.20 |
1 |
The
fund commenced operations on June 24, 2022. |
|
|
|
|
NAV,
Shares Offering Price and Redemption Price per
Share |
Fund |
Class
C ($) |
|
Disciplined
Value Fund |
22.62 |
|
Disciplined
Value Mid Cap Fund |
26.14 |
|
Diversified
Real Assets |
– |
|
Fundamental
Equity Income Fund1
|
– |
|
Global
Shareholder Yield Fund |
11.67 |
|
International
Growth Fund |
28.91 |
|
Mid
Cap Growth Fund |
17.21 |
|
Money
Market Fund |
1.00 |
|
U.S.
Growth Fund |
21.84 |
|
1 |
The
fund commenced operations on June 24, 2022. |
|
|
|
|
|
|
|
|
|
Net
Asset Value, Offering Price, and Redemption Price per
Share |
Fund |
Class I
($) |
Class R2
($) |
Class R4
($) |
Class R5
($) |
Class R6
($) |
Class
NAV
($) |
Class 1
($) |
Disciplined
Value Fund |
23.57 |
23.53 |
23.58 |
23.63 |
23.62 |
23.63 |
– |
Disciplined
Value Mid Cap Fund |
27.55 |
27.41 |
27.51 |
– |
27.54 |
– |
– |
Diversified
Real Assets |
– |
– |
– |
– |
– |
13.28 |
– |
Fundamental
Equity Income Fund1
|
– |
– |
– |
– |
– |
– |
– |
Global
Shareholder Yield Fund |
11.69 |
11.71 |
– |
– |
11.67 |
11.68 |
– |
International
Growth Fund |
30.09 |
30.00 |
30.08 |
– |
30.13 |
30.08 |
30.08 |
Mid
Cap Growth Fund |
17.28 |
– |
– |
– |
17.29 |
17.29 |
– |
Money
Market Fund |
– |
– |
– |
– |
– |
– |
– |
U.S.
Growth Fund |
23.35 |
23.16 |
23.36 |
– |
23.45 |
23.45 |
– |
1 |
The
fund commenced operations on June 24, 2022. |
ADDITIONAL
INFORMATION CONCERNING TAXES
The
following discussion is a general and abbreviated summary of certain tax
considerations affecting the funds and their shareholders. No attempt is
made to
present a detailed explanation of all federal, state, local and foreign tax
concerns, and the discussions set forth here and in the Prospectus do
not
constitute tax advice. Investors are urged to consult their own tax advisors
with specific questions relating to federal, state, local or foreign
taxes.
Each fund
is treated as a separate entity for accounting and tax purposes, and intends to
qualify as a RIC under Subchapter M of the Code for each taxable
year. In order to qualify for the special tax treatment accorded RICs and their
shareholders, a fund must, among other things:
|
(a)
derive at least 90% of its gross income from dividends, interest, payments
with respect to certain securities loans, and gains from the sale or
other
disposition of stock, securities, and foreign currencies, or other income
(including but not limited to gains from options, futures, or forward
contracts)
derived with respect to its business of investing in such stock,
securities, or currencies, and net income derived from interests in
qualified
publicly traded partnerships (as defined
below); |
|
(b)
distribute with respect to each taxable year at least the sum of 90% of
its investment company taxable income (as that term is defined in the
Code
without regard to the deduction for dividends paid-generally, taxable
ordinary income and the excess, if any, of net short-term capital gains
over
net long-term capital losses) and 90% of net tax-exempt interest income,
for such year; and |
|
(c)
diversify its holdings so that, at the end of each quarter of the fund’s
taxable year: (i) at least 50% of the market value of the fund’s total
assets is represented
by cash and cash items, U.S. government securities, securities of other
RICs, and other securities limited in respect of any one issuer to
a
value not greater than 5% of the value of the fund’s total assets and not
more than 10% of the outstanding voting securities of such issuer; and
(ii) not
more than 25% of the value of the fund’s total assets is invested (x) in
the securities (other than those of the U.S. government or other RICs) of
any
one issuer or of two or more issuers that the fund controls and that are
engaged in the same, similar, or related trades or businesses, or (y) in
the
securities of one or more qualified publicly traded partnerships (as
defined below). |
With
respect to gains from the sale or other disposition of foreign currencies, the
Treasury Department can, by regulation, exclude from qualifying income
foreign currency gains which are not directly related to a RIC’s principal
business of investing in stock (or options or futures with respect to
stock or
securities), but no regulations have been proposed or adopted pursuant to this
grant of regulatory authority.
In general,
for purposes of the 90% gross income requirement described in paragraph (a)
above, income derived from a partnership will be treated as qualifying
income only to the extent such income is attributable to items of income of the
partnership which would be qualifying income if realized by the RIC.
However, 100% of the net income derived from an interest in a “qualified
publicly traded partnership” will be treated as qualifying income. A
“qualified
publicly traded partnership” is a publicly traded partnership that satisfies
certain requirements with respect to the type of income it produces.
In addition, although in general the passive loss rules of the Code do not apply
to RICs, such rules do apply to a RIC with respect to items attributable
to an interest in a qualified publicly traded partnership. Finally, for purposes
of paragraph (c) above, the term “outstanding voting securities
of such issuer” will include the equity securities of a qualified publicly
traded partnership. If a fund invests in publicly traded partnerships, it
might be
required to recognize in its taxable year income in excess of its cash
distributions from such publicly traded partnerships during that year.
Such
income, even if not reported to a fund by the publicly traded partnerships until
after the end of that year, would nevertheless be subject to the RIC
income
distribution requirements and would be taken into account for purposes of the 4%
excise tax described below.
Each fund
may use “equalization payments” in determining the portion of its net investment
income and net realized capital gains that have been distributed.
A fund that elects to use equalization payments will allocate a portion of its
investment income and capital gains to the amounts paid in redemption
of fund shares, and such income and gains will be deemed to have been
distributed by the fund for purposes of the distribution requirements
described above. This may have the effect of reducing the amount of income and
gains that the fund is required to distribute to shareholders
in order for the fund to avoid federal income tax and excise tax and also may
defer the recognition of taxable income by shareholders. This
process does not affect the tax treatment of redeeming shareholders and, since
the amount of any undistributed income and/or gains will be
reflected
in the value of the fund’s shares, the total return on a shareholder’s
investment will not be reduced as a result of the fund’s distribution policy.
The IRS has
not published any guidance concerning the methods to be used in allocating
investment income and capital gain to redemptions of shares. In the
event that the IRS determines that a fund is using an improper method of
allocation and has under-distributed its net investment income or net
realized
capital gains for any taxable year, such fund may be liable for additional
federal income or excise tax or may jeopardize its treatment as a
RIC.
A fund may
invest in certain commodity investments including commodity-based ETFs. Under an
IRS revenue ruling effective after September 30, 2006,
income from certain commodities-linked derivatives in which certain funds invest
is not considered qualifying income for purposes of the 90% qualifying
income test. This ruling limits the extent to which a fund may receive income
from such commodity-linked derivatives to a maximum of 10% of its
annual gross income.
As a result
of qualifying as a RIC, a fund will not be subject to U.S. federal income tax on
its net investment income (i.e., its investment company taxable
income, as that term is defined in the Code, determined without regard to the
deduction for dividends paid) and net capital gain (i.e., the excess of
its net realized long-term capital gain over its net realized short-term capital
loss), if any, that it distributes to its shareholders in each taxable
year, provided that it distributes to its shareholders at least the sum of 90%
of its investment company taxable income and 90% of its net exempt
interest income for such taxable year.
A fund will
be subject to a non-deductible 4% excise tax to the extent that the fund does
not distribute by the end of each calendar year: (a) at least 98% of its
ordinary income for the calendar year; (b) at least 98.2% of its capital gain
net income for the one-year period ending, as a general rule, on October 31
of each year; and (c) 100% of the undistributed ordinary income and capital gain
net income from the preceding calendar years (if any). For this
purpose, any income or gain retained by a fund that is subject to corporate tax
will be considered to have been distributed by year-end. To the extent
possible, each fund intends to make sufficient distributions to avoid the
application of both federal income and
excise taxes. Under current law, distributions
of net investment income and net capital gain are not taxed to a life insurance
company to the extent applied to increase the reserves for the
company’s variable annuity and life insurance contracts.
If a fund
failed to meet the annual gross income test or asset diversification test or
fails to satisfy the 90% distribution requirement as described above, for
any taxable year, the fund would incur income tax
as a
regular corporation on its
taxable income and net capital gains for that year, it would lose its
deduction for dividends paid to shareholders, and it would be subject to certain
gain recognition and distribution requirements upon requalification.
Further distributions of income by the fund to its shareholders would be treated
as dividend income, although such dividend income would
constitute qualified dividend income subject to reduced federal income tax rates
if the shareholder satisfies certain holding period requirements with
respect to its shares in the fund. Compliance with the RIC 90% qualifying income
test and with the asset diversification requirements is carefully monitored
by the Advisor and the subadvisors and it is intended that each fund will comply
with the requirements for qualification as a RIC.
If a fund
fails to meet the annual gross income test described above, the fund will
nevertheless be considered to have satisfied the test if (i) (a) such
failure is
due to reasonable cause and not due to willful neglect and (b) the fund reports
the failure, and (ii) the fund pays an excise tax equal to the excess
non-qualifying income. If a fund fails to meet the asset diversification test
described above with respect to any quarter, the fund will nevertheless
be considered to have satisfied the requirements for such quarter if the fund
cures such failure within six months and either: (i) such failure is
de
minimis; or (ii)
(a) such failure is due to reasonable cause and not due to willful neglect; and
(b) the fund reports the failure and pays an excise
tax.
A fund may
make investments that produce income that is not matched by a corresponding cash
distribution to the fund, such as investments in pay-in-kind
bonds or in obligations such as certain Brady Bonds and zero-coupon securities
having OID (i.e., an amount equal to the excess of the stated redemption
price of the security at maturity over its issue price), or market discount
(i.e., an amount equal to the excess of the stated redemption price at
maturity of the security (appropriately adjusted if it also has OID) over its
basis immediately after it was acquired) if the fund elects to accrue
market
discount on a current basis. In addition, income may continue to accrue for
federal income tax purposes with respect to a non-performing investment.
Any such income would be treated as income earned by the fund and therefore
would be subject to the distribution requirements of the Code.
Because such income may not be matched by a corresponding cash distribution to
the fund, the fund may be required to borrow money or dispose of
other securities to be able to make distributions to its investors. In addition,
if an election is not made to currently accrue market discount with
respect to a market discount bond, all or a portion of any deduction for any
interest expense incurred to purchase or hold such bond may be deferred
until such bond is sold or otherwise disposed of.
Investments
in debt obligations that are at risk of or are in default present special tax
issues for a fund. Tax rules are not entirely clear about issues such as
when a fund may cease to accrue interest, OID, or market discount, when and to
what extent deductions may be taken for bad debts or worthless
securities, how payments received on obligations in default should be allocated
between principal and income, and whether exchanges of debt
obligations in a workout context are taxable. These and other issues will be
addressed by a fund that holds such obligations in order to reduce the
risk of
distributing insufficient income to preserve its status as a RIC and seek to
avoid becoming subject to federal income or excise tax.
A fund may
make investments in convertible securities and exchange traded notes.
Convertible debt ordinarily is treated as a “single property” consisting
of a pure debt interest until conversion, after which the investment becomes an
equity interest. If the security is issued at a premium (i.e., for cash in
excess of the face amount payable on retirement), the creditor-holder may
amortize the premium over the life of the bond. If the security is issued for
cash at a price below its face amount, the creditor-holder must accrue OID in
income over the life of the debt. The creditor-holder’s exercise of the
conversion privilege is treated as a nontaxable event. Mandatorily convertible
debt, such as an exchange traded note issued in the form of an unsecured
obligation that pays a return based on the performance of a specified market
index, currency or commodity, is often treated as a contract to buy or
sell the reference property rather than debt. Similarly, convertible preferred
stock with a mandatory conversion feature is ordinarily, but not always,
treated as equity rather than debt. In general, conversion of preferred stock
for common stock of the same corporation is tax-free. Conversion
of
preferred stock for cash is a taxable redemption. Any redemption premium for
preferred stock that is redeemable by the issuing company might be required to
be amortized under OID principles.
Certain
funds may engage in hedging or derivatives transactions involving foreign
currencies, forward contracts, options and futures contracts (including
options, futures and forward contracts on foreign currencies) and short sales
(see “Hedging and Other Strategic Transactions”). Such transactions
will be subject to special provisions of the Code that, among other things, may
affect the character of gains and losses realized by a fund (that is,
may affect whether gains or losses are ordinary or capital), accelerate
recognition of income of a fund and defer recognition of certain of the
fund’s
losses. With respect to gains from the sale or other disposition of foreign
currencies, the Treasury Department can, by regulation, exclude from
qualifying
income foreign currency gains which are not directly related to a RIC’s
principal business of investing in stock (or options or futures with
respect to
stock or securities), but no regulations have been proposed or adopted pursuant
to this grant of regulatory authority. These rules could therefore
affect the character, amount and timing of distributions to shareholders. The
futures that are traded on a regulated exchange, such as NYSE or NASDAQ,
will be treated as Code Section 1256 contracts, and the capital gain/loss will
be reflected as 40% short-term capital gain/loss and 60% long-term
capital gain/loss. Any futures that are not traded on a regulated exchange will
follow the 365 day rule of short-term capital or long-term capital
treatment. In addition, these provisions: (1) will require a fund to
“mark-to-market” certain types of positions in its portfolio (that is, treat
them as if they
were closed out); and (2) may cause a fund to recognize income without receiving
cash with which to pay dividends or make distributions in amounts
necessary to satisfy the distribution requirement and avoid the 4% excise tax.
Each fund intends to monitor its transactions, will make the appropriate
tax elections and will make the appropriate entries in its books and records
when it acquires any option, futures contract, forward contract or hedged
investment in order to mitigate the effect of these rules.
Foreign
exchange gains and losses realized by a fund in connection with certain
transactions involving foreign currency-denominated debt securities,
certain
foreign currency options, foreign currency forward contracts, foreign
currencies, or payables or receivables denominated in a foreign currency
are subject
to Section 988 of the Code, which generally causes such gains and losses to be
treated as ordinary income and losses and may affect the amount,
timing and character of distributions to shareholders. If the net foreign
exchange loss for a year treated as ordinary loss under Section 988 were to
exceed a fund’s investment company taxable income computed without regard to
such loss, the resulting overall ordinary loss for such year would not
be deductible by the fund or its shareholders in future years. Under such
circumstances, distributions paid by the fund could be deemed return of
capital.
Certain
funds may be required to account for their transactions in forward rolls or
swaps, caps, floors and collars in a manner that, under certain circumstances,
may limit the extent of their participation in such transactions. Additionally,
a fund may be required to recognize gain, but not loss, if a swap or
other transaction is treated as a constructive sale of an appreciated financial
position in a fund’s portfolio. Additionally, some countries restrict
repatriation which may make it difficult or impossible for a fund to obtain cash
corresponding to its earnings or assets in those countries. However, a
fund must distribute to shareholders for each taxable year substantially all of
its net income and net capital gains, including such income or gain, to
qualify as a RIC and avoid liability for any federal income or excise tax.
Therefore, a fund may have to dispose of its portfolio securities under
disadvantageous
circumstances to generate cash, or borrow cash, to satisfy these distribution
requirements.
A fund’s
investments in REITs are subject to special tax considerations. To avoid income
taxation as a corporation, REITs are generally required to distribute
their net income each year to their shareholders. REITs will be taxed at regular
corporate rates on any undistributed real estate investment trust
taxable income, including undistributed net capital gains.
A REIT must
distribute to its stockholders for each taxable year ordinary income dividends
in an amount equal to at least (a) 90% of the sum of (i) its “real
estate investment trust taxable income” (before deduction of dividends paid and
excluding any net capital gains) and (ii) the excess of net income from
foreclosure property over the tax on such income, minus (b) certain excess
non-cash income. Real estate investment trust taxable income generally
is the taxable income of a REIT computed as if it were an ordinary corporation,
with certain adjustments. Distributions must be made in the taxable
year to which they relate or, if declared before the timely filing of the REIT’s
tax return for such year and paid not later than the first regular dividend
payment after such declaration, in the following taxable year.
Distributions
made by a REIT to a fund generally will be taxed as ordinary income. Amounts
that are properly designated as capital gain dividends by the REIT
generally will be taxed as long-term capital gain, without regard to the period
for which the fund has held its REIT shares, to the extent that they do not
exceed the REIT’s actual net capital gain for the taxable year. Such ordinary
income and capital gain are not eligible for the dividends received
deduction allowed to corporations. In addition, a REIT may elect to retain and
pay income tax on its long-term capital gains. If a REIT so elects,
each stockholder will take into income the stockholder’s share of the retained
capital gain as long-term capital gain and will receive a credit or refund for
that stockholder’s share of the tax paid by the REIT. The stockholder will
increase the basis of such stockholder’s share by an amount equal to the
excess of the retained capital gain included in the stockholder’s income over
the tax deemed paid by such stockholder. Distributions in excess of a REIT’s
current or accumulated earnings and profits will be considered first a tax-free
return of capital for federal income tax purposes, reducing the tax basis
of the fund in the REIT shares, and then, to the extent the distribution exceeds
such basis, a gain realized from the sale of shares. REITs notify their
stockholders as to the portions of each distribution constitute ordinary income,
capital gain or return of capital for federal income tax purposes. Any
distribution that is (i) declared by a REIT in October, November or December of
any calendar year and payable to stockholders of record on a specified
date in such months and (ii) actually paid by the REIT in January of the
following year, shall be deemed to have been received by each stockholder
on December 31 of such calendar year and, as a result, will be includable in
gross income of the stockholder for the taxable year which includes
such December 31.
A fund may
invest in REITs that hold residual interests in real estate mortgage investment
conduits (“REMICs”). Under U.S. Treasury regulations that are
authorized by the Code but have not yet been issued (but may apply
retroactively), some of a REIT’s income attributable to such an interest (an
“excess
inclusion”) generally will be allocated to the REIT’s shareholders in proportion
to the dividends they receive; those regulations are expected to treat a
RIC’s excess inclusion income similarly. Excess inclusion income so allocated to
certain tax-exempt entities (including qualified retirement plans,
individual retirement accounts and public charities) would constitute unrelated
business taxable income to them. In addition, if a “disqualified organization”
(which term includes a governmental unit and a tax-exempt entity) is a record
holder of a RIC’s shares at any time during a taxable year, the RIC
will be subject to tax equal to the portion of its excess inclusion income for
the year that is allocable to the disqualified organization multiplied
by the
highest federal income tax rate imposed on corporations. A fund will not invest
directly in REMIC residual interests and does not intend to invest in REITs
that, to its knowledge, invest in those interests.
Certain
funds may invest in REITs and/or MLPs. Effective for taxable years beginning
after December 31, 2017 and before January 1, 2026, the Code generally
allows individuals and certain non-corporate entities a deduction for 20% of
“qualified publicly traded partnership income,” such as income from MLPs,
and a deduction for 20% of qualified REIT dividends. Treasury regulations allow
a RIC to pass the character of its qualified REIT dividends through to
its shareholders provided certain holding period requirements are met. A similar
pass-through by RICs of qualified publicly traded partnership
income is not currently available. As a result, an investor who invests directly
in MLPs will be able to receive the benefit of such deductions,
while a shareholder in a fund that invests in MLPs currently will
not.
If a fund
invests in stock (including an option to acquire stock such as is inherent in a
convertible bond) in certain foreign corporations that receive at least 75%
of their annual gross income from passive sources (such as interest, dividends,
certain rents and royalties or capital gain) or hold at least 50% of
their assets in investments producing such passive income (“passive foreign
investment companies” or “PFICs”), the fund
could be subject to federal
income tax and additional interest charges on “excess distributions” received
from such companies or gain from the sale of stock in such companies,
even if all income or gain actually received by the fund is timely distributed
to its shareholders. The fund would not be able to pass through to its
shareholders any credit or deduction for such a tax.
If a fund
were to invest in a PFIC and elected to treat the PFIC as a “qualified electing
fund” under the Code, in lieu of the foregoing requirements, the fund would
be required to include in income each year a portion of the ordinary earnings
and net capital gain of the qualified electing fund, even if not distributed
to the fund. Alternatively, a fund can elect to mark-to-market at the end of
each taxable year its shares in a PFIC; in this case, the fund would
recognize as ordinary income any increase in the value of such shares, and as
ordinary loss any decrease in such value to the extent it did not exceed
prior increases included in income. Under either election, a fund might be
required to recognize in a year income in excess of its distributions
from PFICs
and its proceeds from dispositions of PFIC stock during that year, and such
income would nevertheless be subject to the distribution requirements
and would be taken into account for purposes of the 4% excise tax.
A fund may
be subject to withholding and other taxes imposed by foreign countries with
respect to its investments in foreign securities. Some tax conventions
between certain countries and the U.S. may reduce or eliminate such taxes. If
more than 50% of the value of a fund’s total assets at the close of
any taxable year consists of stock or securities of foreign corporations, the
fund will be able to elect to
pass such
taxes through to the shareholders
(as additional income) along with a corresponding entitlement to a foreign tax
credit or deduction. Such
foreign taxes will reduce the amount a
fund has
available to distribute to shareholders.
If this
election is made, a shareholder generally subject to tax will be required to
include in gross income (in addition to taxable dividends actually received)
his or her pro rata share of the foreign taxes paid by the fund, and may be
entitled either to deduct (as an itemized deduction) his or her pro rata share
of foreign taxes in computing his or her taxable income or to use it (subject to
limitations) as a foreign tax credit against his or her U.S. federal
income tax liability. No deduction for foreign taxes may be claimed by a
shareholder who does not itemize deductions. Each shareholder will be
notified
after the close of the fund’s taxable year whether the foreign taxes paid by the
fund will “pass-through” for that taxable year.
For United
States federal income tax purposes, distributions paid out of a fund’s current
or accumulated earnings and profits will, except in the case of distributions
of qualified dividend income and capital gain dividends described below, be
taxable as ordinary dividend income. Certain income distributions
paid by a fund (whether paid in cash or reinvested in additional fund shares) to
individual taxpayers are taxed at rates applicable to net long-term
capital gains (currently 20%, 15%, or 0%, depending on an individual’s level of
income). This tax treatment applies only if certain holding period
requirements and other requirements are satisfied by the shareholder and the
dividends are attributable to qualified dividend income received by the fund
itself. For this
purpose, “qualified dividend income” means dividends received by a fund from
United States corporations and “qualified foreign
corporations,” as well as certain dividends from underlying funds that are
designated as qualified dividend income, provided that the fund satisfies
certain holding period and other requirements in respect of the stock of such
corporations and underlying funds. There can
be no assurance as to what
portion of a fund’s dividend distributions will qualify as qualified dividend
income. Dividends paid by funds that primarily invest in bonds and other debt
securities generally will not qualify for the reduced tax rate applicable to
qualified dividend income and will not qualify for the corporate dividends-received
deduction.
Distributions from a PFIC are not eligible for the reduced rate of tax on
“qualified dividend income.”
If a fund
should have dividend income that qualifies for the reduced tax rate applicable
to qualified dividend income, the maximum amount allowable will be
reported by the fund. This amount will be reflected on Form 1099-DIV for the
applicable calendar year.
For
purposes of the dividends received deduction available to corporations,
dividends received by a fund, if any, from U.S. domestic corporations in
respect of
the stock of such corporations held by the fund, for U.S. federal income tax
purposes, for at least 46 days (91 days in the case of certain preferred
stock) during a prescribed period extending before and after each such dividend
and distributed and reported by the fund may be treated as qualifying
dividends. Corporate shareholders must meet the holding period requirements
stated above with respect to their shares of a fund for each dividend in
order to qualify for the deduction and, if they have any debt that is deemed
under the Code directly attributable to such shares, may be denied a
portion of the dividends received deduction. Additionally, any corporate
shareholder should consult its tax advisor regarding the possibility
that its
tax basis in its shares may be reduced, for federal income tax purposes, by
reason of “extraordinary dividends” received with respect to the shares and,
to the extent such basis would be reduced below zero, that current recognition
of income would be required.
Certain
distributions reported by a fund as Section 163(j) interest dividends may be
treated as interest income by shareholders for purposes of the tax rules
applicable to interest expense limitations under Section 163(j) of the Code.
Such treatment by the shareholder is generally subject to holding period
requirements and other potential limitations, although the holding period
requirements are generally not applicable to dividends declared by money
market funds and certain other funds that declare dividends daily and pay such
dividends on a monthly or more frequent basis. The amount that a fund is
eligible to report as a Section 163(j) dividend for a tax year is generally
limited to the excess of the fund’s business interest income over the
sum of the
fund’s (i) business interest expense and (ii) other deductions properly
allocable to the fund’s business interest income.
Because
Money Market Fund’s dividends and capital gain distributions are derived from
interest paying securities rather than dividends paid from stocks,
they will not qualify for the corporate dividends received deduction or for the
reduced tax rate applicable to qualified dividend income.
Shareholders
receiving any distribution from a fund in the form of additional shares pursuant
to a dividend reinvestment plan will be treated as receiving a
taxable distribution in an amount equal to the fair market value of the shares
received, determined as of the reinvestment date. Shareholders
who have chosen automatic reinvestment of their distributions will have a
federal tax basis in each share received pursuant to such a reinvestment
equal to the amount of cash they would have received had they elected to receive
the distribution in cash, divided by the number of shares
received in the reinvestment.
For federal
income tax purposes, a fund is permitted to carry forward a net capital loss
incurred in any year to offset net capital gains, if any, in any subsequent
year until such loss carryforwards have been fully used. Capital losses carried
forward will retain their character as either short-term or long-term
capital losses. A fund’s ability to utilize capital loss carryforwards in a
given year or in total may be limited. To the extent subsequent net capital
gains are offset by such losses, they would not result in federal income tax
liability to a fund and would not be distributed as such to shareholders.
As
of March
31, 2022, none
of the funds had any capital loss carry forwards available to offset
future net capital
gains.
A state
income (and possibly local income and/or intangible property) tax exemption is
generally available to the extent (if any) the fund’s distributions are derived
from interest on (or, in the case of intangible property taxes, the value of its
assets is attributable to) certain U.S. Government obligations, provided in
some states that certain thresholds for holdings of such obligations and/or
reporting requirements are satisfied. The funds will not seek to satisfy any
threshold or reporting requirements that may apply in particular taxing
jurisdictions, although a fund may in its sole discretion provide relevant
information to shareholders.
Distributions
of net capital gain, if any, reported as capital gains dividends are taxable to
a shareholder as long-term capital gains, regardless of how long the
shareholder has held fund shares. A distribution of an amount in excess of a
fund’s current and accumulated earnings and profits will be treated by
a shareholder as a return of capital which is applied against and reduces the
shareholder’s basis in his or her shares. To the extent that the amount of
any such distribution exceeds the shareholder’s basis in his or her shares, the
excess will be treated by the shareholder as gain from a sale or exchange
of the shares. Distributions of gains from the sale of investments that a fund
owned for one year or less will be taxable as ordinary income.
A fund may
elect to retain its net capital gain or a portion thereof for investment and be
taxed at corporate rates on the amount retained. In such case, it may
designate the retained amount as undistributed capital gains in a notice to its
shareholders who will be treated as if each received a distribution of his pro
rata share of such gain, with the result that each shareholder will: (i) be
required to report his pro rata share of such gain on his tax return as
long-term
capital gain; (ii) receive a refundable tax credit for his pro rata share of tax
paid by the fund on the gain; and (iii) increase the tax basis for his
shares by
an amount equal to the deemed distribution less the tax credit.
Selling
shareholders generally will recognize gain or loss in an amount equal to the
difference between the shareholder’s adjusted tax basis in the shares sold
and the sale proceeds. Such gain or loss will be treated as capital gain or loss
if the shares are capital assets in the shareholder’s hands and will be
long-term or short-term, depending upon the shareholder’s tax holding period for
the shares and subject to the special rules described below. The
maximum tax rate applicable to net capital gains recognized by individuals and
other non-corporate taxpayers is generally 20% for gains recognized
on the sale of capital assets held for more than one year (as well as certain
capital gain distributions) (15% or 0% for individuals at certain income
levels).
A Money
Market Fund shareholder ordinarily will not realize a taxable gain or loss if
the fund always successfully maintains a constant NAV per share, although a
loss may still arise if a CDSC is paid. If Money Market Fund is not successful
in maintaining a constant NAV per share, a redemption may produce a
taxable gain or loss.
A
shareholder exchanging shares of one fund for shares of another fund will be
treated for tax purposes as having sold the shares of the first fund,
realizing
tax gain or loss on such exchange. A shareholder exercising a right to convert
one class of fund shares to a different class of shares of the same fund
should not realize taxable gain or loss.
Any loss
realized upon the sale or exchange of fund shares with a holding period of six
months or less will be treated as a long-term capital loss to the extent of
any capital gain distributions received (or amounts designated as undistributed
capital gains) with respect to such shares. In addition, all or a portion of
a loss realized on a sale or other disposition of fund shares may be disallowed
under “wash sale” rules to the extent the shareholder acquires other
shares of the same fund (whether through the reinvestment of distributions or
otherwise) within a period of 61 days beginning 30 days before and ending
30 days after the date of disposition of the shares. Any disallowed loss will
result in an adjustment to the shareholder’s tax basis in some or all of the
other shares acquired.
Sales
charges paid upon a purchase of shares cannot be taken into account for purposes
of determining gain or loss on a sale of the shares before the 91st day
after their purchase to the extent a sales charge is reduced or eliminated in a
subsequent acquisition of shares of a fund, during the period beginning
on the date of such sale and ending on January 31 of the calendar year following
the calendar year in which such sale was made, pursuant to a
reinvestment or exchange privilege. Any disregarded amounts will result in an
adjustment to the shareholder’s tax basis in some or all of any other
shares
acquired.
The
benefits of the reduced tax rates applicable to long-term capital gains and
qualified dividend income may be impacted by the application of the alternative
minimum tax to individual shareholders.
Certain net
investment income received by an individual having adjusted gross income in
excess of $200,000 (or $250,000 for married individuals filing
jointly) will be subject to a tax of 3.8%. Undistributed net investment income
of trusts and estates in excess of a specified amount also will be subject to
this tax. Dividends and capital gains distributed by a fund, and gain realized
on redemption of fund shares, will constitute investment income of the type
subject to this tax.
Special tax
rules apply to investments through defined contribution plans and other
tax-qualified plans. Shareholders should consult their tax advisor to
determine the suitability of shares of a fund as an investment through such
plans.
Dividends
and distributions on a fund’s shares are generally subject to federal income tax
as described herein to the extent they do not exceed the fund’s
realized income and gains, even though such dividends and distributions may
economically represent a return of a particular shareholder’s investment.
Such distributions are likely to occur in respect of shares purchased at a time
when a fund’s net asset value reflects gains that are either unrealized
or realized but not distributed. Such realized gains may be required to be
distributed even when a fund’s net asset value also reflects unrealized
losses. Such gains could be substantial, and the taxes incurred by a shareholder
with respect to such distributions could have a material impact on
the value of the shareholder’s investment.
Certain
distributions declared in October, November or December to shareholders of
record of such month and paid in the following January will be taxed to
shareholders as if received on December 31 of the year in which they were
declared. In addition, certain other distributions made after the close of a
taxable year of a fund may be “spilled back” and treated as paid by the fund
(except for purposes of the non-deductible 4% federal excise tax) during such
taxable year. In such case, shareholders will be treated as having received such
dividends in the taxable year in which the distributions were
actually made.
A fund will
inform its shareholders of the source and tax status of all distributions
promptly after the close of each calendar year.
Each fund
(other than
Money Market Fund) (or its
administrative agent) must report to the IRS and furnish to shareholders the
cost basis information and holding
period for such fund’s shares purchased on or after January 1, 2012, and
repurchased by the fund on or after that date. A fund will permit shareholders
to elect from among several permitted cost basis methods. In the absence of an
election, each fund will use an average cost as its default cost basis
method. The cost basis method that a shareholder elects may not be changed with
respect to a repurchase of shares after the settlement date of the
repurchase. Shareholders should consult with their tax advisors to determine the
best permitted cost basis method for their tax situation and to
obtain more information about how the new cost basis reporting rules apply to
them.
A fund
generally is required to withhold and remit to the U.S. Treasury a percentage of
the taxable dividends and other distributions paid to and proceeds of
share sales, exchanges, or redemptions made by any individual shareholder
(including foreign individuals) who fails to furnish the fund with a
correct taxpayer identification number, who has under-reported dividends or
interest income, or who fails to certify to the fund that he or she is
a United
States person and is not subject to such withholding. The backup
withholding tax rate is 24%. Distributions will not be subject to backup
withholding
to the extent they are subject to the withholding tax on foreign persons
described in the next paragraph. Any tax withheld as a result of backup
withholding does not constitute an additional tax imposed on the record owner of
the account and may be claimed as a credit on the record owner’s
federal income tax return.
Non-U.S.
investors not engaged in a U.S. trade or business with which their investment in
a fund is effectively connected will be subject to U.S. federal income tax
treatment that is different from that described above. Such non-U.S. investors
may be subject to withholding tax at the rate of 30% (or a lower rate
under an applicable tax treaty) on amounts treated as ordinary dividends from a
fund. Capital gain distributions, if any, are not subject to the 30%
withholding tax. Unless an effective IRS Form W-8BEN or other authorized
withholding certificate is on file, backup withholding will apply to
certain
other payments from a fund. Non-U.S. investors should consult their tax advisors
regarding such treatment and the application of foreign taxes to an
investment in a fund.
Properly-reported
dividends generally are exempt from U.S. federal withholding tax where they are
(i) “interest-related dividends” paid in respect of a fund’s
“qualified net interest income” (generally, a fund’s U.S. source interest
income, other than certain contingent interest and interest from obligations
of a corporation or partnership in which the fund is at least a 10% shareholder,
reduced by expenses that are allocable to such income) or (ii)
“short-term capital gain dividends” paid in respect of a fund’s “qualified
short-term gains” (generally, the excess of a fund’s net short-term capital
gain over
the fund’s long-term capital loss for such taxable year). Depending on its
circumstances, a fund may designate all, some or none of its potentially
eligible dividends as such interest-related dividends or as short-term capital
gain dividends and/or treat such dividends, in whole or in part, as
ineligible for this exemption from withholding.
Under
legislation known as FATCA, a 30% U.S. withholding tax may apply to any
U.S.-source “withholdable payments” made to a non-U.S. entity unless
the
non-U.S. entity enters into an agreement with either the IRS or a governmental
authority in its own country, as applicable, to collect and provide substantial
information regarding the entity’s owners, including “specified United States
persons” and “United States owned foreign entities,” or otherwise
demonstrates compliance with or exemption from FATCA. The term “withholdable
payment” includes any payment of interest (even if the
interest is
otherwise exempt from the withholding rules described above) or dividends, in
each case with respect to any U.S. investment. The withholding
tax regime went into effect on July 1, 2014 with respect to U.S.-source income.
The IRS has issued proposed regulations, which have immediate
effect, while
pending, to
eliminate the withholding tax that was scheduled to begin in 2019 with respect
to U.S.-source investment sale proceeds. A
specified United States person is essentially any U.S. person, other than
publicly traded corporations, their affiliates, tax-exempt organizations,
governments, banks, real estate investment trusts, RICs, and common trust funds.
A United States owned foreign entity is a foreign entity with
one or more “substantial United States owners,” generally defined as United
States person owning a greater than 10% interest. Non-U.S. investors
should consult their own tax advisers regarding the impact of this legislation
on their investment in a fund.
If a
shareholder realizes a loss on disposition of a fund’s shares of $2 million or
more for an individual shareholder or $10 million or more for a corporate
shareholder, the shareholder must file with the IRS a disclosure statement on
Form 8886. Direct shareholders of portfolio securities are in many cases
excepted from this reporting requirement, but under current guidance,
shareholders of a RIC are not excepted. Future guidance may extend the
current exception from this reporting requirement to shareholders of most or all
RICs.
No fund is
subject to Massachusetts corporate excise or franchise taxes. Each fund
anticipates that, provided it qualifies as a RIC under the Code, it also will
not be required to pay any Massachusetts income tax. The foregoing discussion
generally relates to U.S. federal income tax law as applicable to U.S.
persons (i.e., U.S. citizens or residents and U.S. domestic corporations,
partnerships, trusts or estates) subject to tax under such law. The discussion
does not address special tax rules applicable to certain types of investors,
such as tax-exempt entities, insurance companies, and financial institutions.
Dividends,
capital gain distributions (if any), and ownership of or gains realized (if any)
on the redemption (including an exchange) of fund shares also may be
subject to state and local taxes. Shareholders should consult their own tax
advisors as to the federal, state or local tax consequences of ownership
of shares of, and receipt of distributions from, a fund in its particular
circumstances.
The
foregoing is a general and abbreviated summary of the applicable provisions of
the Code and Treasury Regulations currently in effect. It is not intended to
be a complete explanation or a substitute for consultation with individual tax
advisors. For the complete provisions, reference should be made to the
pertinent Code sections and the Treasury Regulations promulgated thereunder. The
Code and Treasury Regulations are subject to change, possibly
with retroactive effect.
PORTFOLIO
BROKERAGE
Pursuant to
the Subadvisory Agreements, the subadvisors are responsible for placing all
orders for the purchase and sale of portfolio securities of the funds. The
subadvisors have no formula for the distribution of the funds’ brokerage
business; rather they place orders for the purchase and sale of securities
with the primary objective of obtaining the most favorable overall results for
the applicable fund. The cost of securities transactions for each fund will
consist primarily of brokerage commissions or dealer or underwriter spreads.
Fixed-income securities and money market instruments are generally
traded on a net basis and do not normally involve either brokerage commissions
or transfer taxes.
Occasionally,
securities may be purchased directly from the issuer. For securities traded
primarily in the OTC market, the subadvisors will, where possible,
deal directly with dealers who make a market in the securities unless better
prices and execution are available elsewhere. Such dealers usually act
as principals for their own account.
Selection
of Brokers or Dealers to Effect Trades. In
selecting brokers or dealers to implement transactions, the subadvisors will
give consideration
to a number of factors, including:
• |
price,
dealer spread or commission, if any; |
• |
the
reliability, integrity and financial condition of the broker
dealer; |
• |
size
of the transaction; |
• |
difficulty
of execution; |
• |
brokerage
and research services provided (unless prohibited by applicable law);
and |
• |
confidentiality
and anonymity. |
Consideration
of these factors by a subadvisor, either in terms of a particular transaction or
the subadvisor’s overall responsibilities with respect to the fund and
any other accounts managed by the subadvisor, could result in the applicable
fund paying a commission or spread on a transaction that is in excess of
the amount of commission or spread another broker dealer might have charged for
executing the same transaction.
Securities
of Regular Broker Dealers. The table
below presents information regarding the securities of the funds’ regular broker
dealers (or parents of
the regular broker dealers) that were held by the funds as of March 31,
2022. A “Regular
Broker Dealer” of a fund is defined by the SEC as one of the
10 brokers or dealers that during the fund’s most recent fiscal year: (a)
received the greatest dollar amount of brokerage commissions by virtue of
direct or indirect participation in the fund’s portfolio transactions; (b)
engaged as principal in the largest dollar amount of portfolio transactions
of the fund; or (c) sold the largest dollar amount of securities of the
fund.
|
|
|
Fund |
Regular
Broker Dealer |
Holdings
($000s) |
Disciplined
Value Fund |
Bank
of America Corp. |
218,329 |
|
JPMorgan
Chase & Co. |
339,933 |
|
State
Street Corp. |
139,580 |
|
|
|
Fund |
Regular
Broker Dealer |
Holdings
($000s) |
|
The
Goldman Sachs Group, Inc. |
140,908 |
Disciplined
Value Mid Cap Fund |
State
Street Corp. |
499,305 |
Diversified
Real Assets Fund |
The
Goldman Sachs Group, Inc. |
5,700 |
Fundamental
Equity Income Fund1
|
– |
– |
Global
Shareholder Yield Fund |
JPMorgan
Chase & Co. |
9,138 |
|
Royal
Bank of Canada |
13,323 |
International
Growth Fund |
Bank
of America Corp. |
119,300 |
|
Royal
Bank of Canada |
177,352 |
|
Societe
Generale SA |
191,600 |
|
UBS
Group AG |
133,486 |
Mid
Cap Growth Fund |
State
Street Corp. |
37,146 |
Money
Market Fund |
Barclays
Bank PLC |
33,000 |
U.S.
Growth Fund |
State
Street Corp. |
1,212 |
1 |
The
fund commenced operations on June 24, 2022. |
Soft
Dollar Considerations. In
selecting brokers and dealers, the subadvisors will give consideration to the
value and quality of any research, statistical,
quotation, brokerage or valuation services provided by the broker or dealer to
the subadvisor. In placing a purchase or sale order, unless prohibited
by applicable law, the subadvisor may use a broker whose commission in effecting
the transaction is higher than that of some other broker if the
subadvisor determines in good faith that the amount of the higher commission is
reasonable in relation to the value of the brokerage and research
services provided by such broker, viewed in terms of either the particular
transaction or the subadvisor’s overall responsibilities with respect
to a fund
and any other accounts managed by the subadvisor. In addition to statistical,
quotation, brokerage or valuation services, a subadvisor may receive
from brokers or dealers products or research that are used for both research and
other purposes, such as administration or marketing. In such case, the
subadvisor will make a good faith determination as to the portion attributable
to research. Only the portion attributable to research will be paid
through portfolio brokerage. The portion not attributable to research will be
paid by the subadvisor. Research products and services may be acquired or
received either directly from executing brokers or indirectly through other
brokers in step-out transactions. A “step-out” is an arrangement by which a
subadvisor executes a trade through one broker dealer but instructs that entity
to step-out all or a portion of the trade to another broker dealer.
This second broker dealer will clear and settle, and receive commissions for,
the stepped-out portion. The second broker dealer may or may not have a
trading desk of its own.
Under MiFID
II, EU investment managers, including certain subadvisors to funds in the John
Hancock Fund Complex, may only pay for research from brokers and
dealers directly out of their own resources or by establishing “research payment
accounts” for each client, rather than through client commissions.
MiFID II limits
the use of
soft dollars by subadvisors located in the EU, if applicable, and in certain
circumstances may result in other subadvisors
reducing the use of soft dollars as to certain groups of clients or as to all
clients.
The
subadvisors also may receive research or research credits from brokers that are
generated from underwriting commissions when purchasing new issues of
fixed-income securities or other assets for a fund. These services, which in
some cases also may be purchased for cash, include such matters as general
economic and security market reviews, industry and company reviews, evaluations
of securities and recommendations as to the purchase and sale of
securities. Some of these services are of value to the subadvisor in advising
several of its clients (including the funds), although not all of these
services are necessarily useful and of value in managing the funds. The
management fee paid by a fund is not reduced because a subadvisor and
its
affiliates receive such services.
As noted
above, a subadvisor may purchase new issues of securities for a fund in
underwritten fixed price offerings. In these situations, the underwriter
or selling
group member may provide the subadvisor with research in addition to selling the
securities (at the fixed public offering price) to the funds or other
advisory clients. Because the offerings are conducted at a fixed price, the
ability to obtain research from a broker dealer in this situation provides
knowledge that may benefit the fund, other subadvisor clients, and the
subadvisor without incurring additional costs. These arrangements may not
fall within the safe harbor in Section 28(e) of the Exchange Act, because the
broker dealer is considered to be acting in a principal capacity in underwritten
transactions. However, FINRA has adopted rules expressly permitting broker
dealers to provide bona fide research to advisors in connection
with fixed price offerings under certain circumstances. As a general matter in
these situations, the underwriter or selling group member will
provide research credits at a rate that is higher than that which is available
for secondary market transactions.
Brokerage
and research services provided by brokers and dealers include advice, either
directly or through publications or writings, as to:
• |
the
value of securities; |
• |
the
advisability of purchasing or selling
securities; |
• |
the
availability of securities or purchasers or sellers of securities;
and |
• |
analyses
and reports concerning: (a) issuers; (b) industries; (c) securities; (d)
economic, political and legal factors and trends; and (e) portfolio
strategy. |
Research
services are received primarily in the form of written reports, computer
generated services, telephone contacts and personal meetings with security
analysts. In addition, such services may be provided in the form of meetings
arranged with corporate and industry spokespersons, economists,
academicians and government representatives. In some cases, research services
are generated by third parties but are provided to the subadvisor
by or through a broker.
To the
extent research services are used by the subadvisors, such services would tend
to reduce such party’s expenses. However, the subadvisors do not believe
that an exact dollar value can be assigned to these services. Research services
received by the subadvisors from brokers or dealers executing
transactions for series of the Trusts, which may not be used in connection with
a fund, also will be available for the benefit of other funds managed by
the subadvisors.
Allocation
of Trades by the Subadvisors. The
subadvisors manage a number of accounts other than the funds. Although
investment determinations for the
funds will be made by a subadvisor independently from the investment
determinations it makes for any other account, investments deemed appropriate
for the funds by a subadvisor also may be deemed appropriate by it for other
accounts. Therefore, the same security may be purchased or sold at or
about the same time for both the funds and other accounts. In such
circumstances, a subadvisor may determine that orders for the purchase
or sale of
the same security for the funds and one or more other accounts should be
combined. In this event the transactions will be priced and allocated
in a manner deemed by the subadvisor to be equitable and in the best interests
of the funds and such other accounts. While in some instances
combined orders could adversely affect the price or volume of a security, each
fund believes that its participation in such transactions on balance
will produce better overall results for the fund.
For
purchases of equity securities, when a complete order is not filled, a partial
allocation will be made to each participating account pro rata based on
the order
size. For high demand issues (for example, initial public offerings), shares
will be allocated pro rata by account size as well as on the basis of
account
objective, account size (a small account’s allocation may be increased to
provide it with a meaningful position), and the account’s other holdings.
In addition, an account’s allocation may be increased if that account’s
portfolio manager was responsible for generating the investment idea
or the
portfolio manager intends to buy more shares in the secondary market. For
fixed-income accounts, generally securities will be allocated when appropriate
among accounts based on account size, except if the accounts have different
objectives or if an account is too small to receive a meaningful
allocation. For new issues, when a complete order is not filled, a partial
allocation will be made to each account pro rata based on the order size.
However, if a partial allocation is too small to be meaningful, it may be
reallocated based on such factors as account objectives, strategies,
duration
benchmarks and credit and sector exposure. For example, value funds will likely
not participate in initial public offerings as frequently as growth
funds. In some instances, this investment procedure may adversely affect the
price paid or received by the funds or the size of the position obtainable
for it. On the other hand, to the extent permitted by law, a subadvisor may
aggregate securities to be sold or purchased for the funds with those to be
sold or purchased for other clients that it manages in order to obtain best
execution.
Affiliated
Underwriting Transactions by a Subadvisor. Each Trust
has approved procedures in conformity with Rule 10f-3 under the 1940 Act
whereby a
fund may purchase securities that are offered in underwritings in which an
affiliate of the subadvisors participates. These procedures prohibit a
fund from directly or indirectly benefiting a subadvisor affiliate in connection
with such underwritings. In addition, for underwritings where a subadvisor
affiliate participates as a principal underwriter, certain restrictions may
apply that could, among other things, limit the amount of securities
that the
funds could purchase.
Brokerage
Commissions Paid. For the
last three fiscal periods, the funds paid brokerage commissions in connection
with portfolio transactions. Any
material differences from year to year reflect an increase or decrease in
trading activity by the applicable fund. The total brokerage commissions
paid by the
funds for the fiscal periods ended March 31, 2022, March 31,
2021, and March
31, 2020 are set
forth in the table below:
|
|
|
|
|
Total
Commissions Paid in Fiscal Period Ended March 31, |
Fund |
2022
($) |
2021
($) |
2020
($) |
Disciplined
Value |
4,084,492 |
6,516,833 |
12,095,316 |
Disciplined
Value Mid Cap |
4,874,940 |
5,444,032 |
5,712,714 |
Diversified
Real Assets Fund |
699,593 |
841,263 |
731,897 |
Fundamental
Equity Income Fund1
|
– |
_ |
_ |
Global
Shareholder Yield Fund |
305,609 |
421,341 |
490,699 |
International
Growth Fund |
9,557,841 |
8,671,784 |
9,505,851 |
Mid
Cap Growth Fund |
473,4062
|
897,4433
|
1,057,1474
|
Money
Market Fund |
0 |
0 |
0 |
U.S.
Growth Fund |
424,554 |
368,065 |
320,452 |
1 |
The
fund commenced operations on June 24, 2022. |
2 |
Fiscal
period from September 1, 2021 to March 31, 2022. The fund commenced
operations on October 18, 2021. The fiscal period ended March 31, 2022
includes the historical
operating results of the predecessor fund for the period ended September 1
through October 15, 2021. |
3 |
Predecessor
fund information for its fiscal year ended August 31,
2021. |
4 |
Predecessor
fund information for its fiscal year ended August 31,
2020. |
Affiliated
Brokerage. Pursuant
to procedures determined by the Trustees and consistent with the above policy of
obtaining best net results, a fund may execute
portfolio transactions with or through brokers affiliated with the Advisor or
subadvisor (“Affiliated Brokers”). Affiliated Brokers may act as
broker for
the funds on exchange transactions, subject, however, to the general policy set
forth above and the procedures adopted by the Trustees pursuant to
the 1940 Act. Commissions paid to an Affiliated Broker must be at least as
favorable as those that the Trustees believe to be contemporaneously
charged by other brokers in connection with comparable transactions involving
similar securities being purchased or sold. A transaction
would not be placed with an Affiliated Broker if the fund would have to pay a
commission rate less favorable than the Affiliated Broker’s contemporaneous
charges for comparable transactions for its other most favored, but
unaffiliated, customers, except for accounts for which the Affiliated
Broker acts as clearing broker for another brokerage firm, and any customers of
the Affiliated Broker not comparable to the fund, as determined
by a majority of the Trustees who are not “interested persons” (as defined in
the 1940 Act) of the fund, the Advisor, the subadvisor or the Affiliated
Broker. Because the Advisor or subadvisor that is affiliated with the Affiliated
Broker has, as an investment advisor to the funds, the obligation
to provide investment management services, which includes elements of research
and related investment skills such research and related skills will
not be used by the Affiliated Broker as a basis for negotiating commissions at a
rate higher than that determined in accordance with the above
criteria.
The
Advisor’s indirect parent, Manulife Financial, is the parent of a broker dealer,
JH Distributors. JH Distributors is considered an Affiliated
Broker.
Brokerage
Commissions Paid to Affiliated Brokers. For the
fiscal periods ended March 31, 2022, March 31,
2021, and March
31, 2020, no
commissions
were paid by any of the funds to brokers affiliated with the subadvisors.
The
predecessor fund to Mid Cap Growth Fund paid no commissions
to brokers affiliated with Wellington Management Company LLP for the fiscal
periods ended August 31, 2021 and August 31, 2020.
Commission
Recapture Program. The Board
has approved each fund’s participation in a commission recapture program.
Commission recapture is a form of
institutional discount brokerage that returns commission dollars directly to a
fund. It provides a way to gain control over the commission expenses
incurred by a subadvisor, which can be significant over time and thereby reduces
expenses, improves cash flow and conserves assets. A fund can
derive commission recapture dollars from both equity trading commissions and
fixed-income (commission equivalent) spreads. From time to time, the
Board reviews whether participation in the recapture program is in the best
interests of the funds.
TRANSFER
AGENT SERVICES
John
Hancock Signature Services, Inc., P.O. Box 219909, Kansas City, MO 64121-9909, a
wholly-owned indirect subsidiary of MFC, is the transfer and
dividend paying agent for the Class A, Class C, Class I, Class R2, Class R4,
Class R5, and Class R6 shares of the funds, as applicable.
The fees
paid to Signature Services are determined based on the cost to Signature
Services of providing services to the fund and to all other John Hancock
affiliated funds for which Signature Services serves as transfer agent
(“Signature Services Cost”). Signature Services Cost includes: (i) an
allocable
portion of John Hancock corporate overhead; and (ii) out-of-pocket expenses,
including payments made by Signature Services to intermediaries
and other third-parties (“Subtransfer Agency Fees”) whose clients and/or
customers invest in one or more funds for sub-transfer agency and
administrative services provided to those clients/customers. Signature Services
Cost is calculated monthly and allocated by Signature Services among four
different categories as described below based generally on the Signature
Services Cost associated with providing services to each category in
the aggregate. Within each category, Signature Services Cost is allocated across
all of the John Hancock affiliated funds and/or classes for which
Signature Services provides transfer agent services, on the basis of relative
average net assets.
Retail
Share and Institutional Classes of Non-Municipal Bond Funds. An amount
equal to the total Signature Services Cost associated with providing
services to Class A, Class C, and Class I shares of all non-municipal series of
the Trust and of all other John Hancock affiliated funds for which it serves
as transfer agent is allocated pro-rata based upon assets of all Class A, Class
C, and Class I shares in the aggregate, without regard to fund or class.
Class R6
Shares. An amount
equal to the total Signature Services Cost associated with providing services to
Class R6 shares of the Trusts and all other John
Hancock affiliated funds for which it serves as transfer agent, is allocated
pro-rata based upon assets of all such shares in the aggregate, without
regard to fund.
Retirement
Share Classes. An amount
equal to the total Signature Services Cost associated with providing services to
Class R2, Class R4, and Class R5 shares
of the Trusts and all other John Hancock affiliated funds for which it serves as
transfer agent is allocated pro-rata based upon assets of all such shares
in the aggregate, without regard to fund or class. In addition, payments made to
intermediaries and/or record keepers under Class R Service
plans will be made by each relevant fund on a fund- and class- specific basis
pursuant to the applicable plan.
Municipal
Bond Funds. An amount
equal to the total Signature Services Cost associated with providing services to
Class A, Class C, and Class I shares of
all John Hancock affiliated municipal bond funds for which it serves as transfer
agent is allocated pro-rata based upon assets of all such shares in
the aggregate, without regard to fund or class. John Hancock municipal bond
funds currently only offer Class A, Class C, Class I, and Class R6 shares.
The allocation of Signature Services Costs for Class R6 shares of the municipal
bond funds is described above. The Trusts
currently do not offer any
municipal bond funds.
In applying
the foregoing methodology, Signature Services seeks to operate its aggregate
transfer agency operations on an “at cost” or “break even” basis. The
allocation of aggregate transfer agency costs to categories of funds and/or
classes assets seeks to ensure that shareholders of each class within each
category will pay the same or a very similar level of transfer agency fees for
the delivery of similar services. Under this methodology, the actual
costs associated with providing particular services to a particular fund and/or
share classes during a period of time, including payments to intermediaries
for sub-transfer agency services to clients or customers whose assets are
invested in a particular fund or share class, are not charged to and
borne by that particular fund or share classes during that period. Instead, they
are included in Signature Services Cost, which is then allocated to the
applicable aggregate asset category described above and then allocated to all
assets in that category based on relative net assets. Applying this
methodology
could result in some funds and/or classes having higher or lower transfer agency
fees than they would have had if they bore only fund- or class-specific
costs directly or indirectly attributable to them.
LEGAL
AND REGULATORY MATTERS
There are
no legal proceedings to which the Trusts, the Advisor, or the Distributor is a
party that are likely to have a material adverse effect on the funds or
the ability of either the Advisor or the Distributor to perform its contract
with the funds.
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
The
financial
statements of each
fund for the fiscal period ended March 31, 2022, including
the related financial highlights that appear in the Prospectus,
have been audited by PricewaterhouseCoopers LLP, independent registered public
accounting firm, as stated in their report with respect thereto,
and are incorporated herein by reference in reliance upon said report given on
the authority of said firm as experts in accounting and auditing. PricewaterhouseCoopers
LLP has offices at 101 Seaport Boulevard, Suite 500, Boston, Massachusetts
02210.
FINANCIAL
STATEMENTS
The
financial
statements of each
fund for the fiscal period ended March 31, 2022, are
incorporated herein by reference from each fund’s most recent Annual
Report filed with the SEC on Form N-CSR pursuant to Rule 30b2-1 under the 1940
Act.
CUSTODY
OF PORTFOLIO SECURITIES
Except as
noted below, State Street Bank and Trust Company, State Street Financial Center,
One Lincoln Street, Boston, Massachusetts 02111, currently
acts as custodian and bookkeeping agent with respect to each fund’s assets.
Citibank, N.A., 388 Greenwich Street, New York, New York 10013,
currently acts as custodian and bookkeeping agent with respect to the assets of
Diversified
Real Assets Fund, Global Shareholder Yield Fund, and
International Growth Fund. State
Street and Citibank have selected various banks and trust companies in foreign
countries to maintain custody of certain
foreign securities. Each fund also may use special purpose custodian banks from
time to time for certain assets. State Street and Citibank are authorized
to use the facilities of the Depository Trust Company, the Participants Trust
Company, and the book-entry system of the Federal Reserve Banks.
CODES
OF ETHICS
Each Trust,
the Advisor, the Distributor and each subadvisor to the funds have adopted Codes
of Ethics that comply with Rule 17j-1 under the 1940 Act. Each
Code of Ethics permits personnel subject to the Code of Ethics to invest in
securities, including securities that may be purchased or held by a fund.
APPENDIX
A – DESCRIPTION OF BOND RATINGS
DESCRIPTIONS
OF CREDIT RATING SYMBOLS AND DEFINITIONS
The ratings
of Moody’s Investors Service, Inc. (“Moody’s”), S&P
Global Ratings and Fitch
Ratings (“Fitch”) represent their respective opinions as of the date they
are expressed and not statements of fact as to the quality of various long-term
and short-term debt instruments they undertake to rate. It should be
emphasized that ratings are general and are not absolute standards of quality.
Consequently, debt instruments with the same maturity, coupon and
rating may have different yields while debt instruments of the same maturity and
coupon with different ratings may have the same yield.
Ratings do
not constitute recommendations to buy, sell, or hold any security, nor do they
comment on the adequacy of market price, the suitability of any
security for a particular investor, or the tax-exempt nature or taxability of
any payments of any security.
IN GENERAL
Moody’s. Ratings
assigned on Moody’s global long-term and short-term rating scales are
forward-looking opinions of the relative credit risks of financial
obligations issued by non-financial corporates, financial institutions,
structured finance vehicles, project finance vehicles, and public sector
entities.
Note that
the content of this Appendix A, to the extent that it relates to the ratings
determined by Moody’s, is derived directly from Moody’s electronic publication
of “Ratings Symbols and Definitions” which is available at:
https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
S&P
Global Ratings. An S&P
Global Ratings issue credit rating is a forward-looking opinion about the
creditworthiness of an obligor with respect to a specific
financial obligation, a specific class of financial obligations, or a specific
financial program (including ratings on medium-term note programs and
commercial paper programs). It takes into consideration the creditworthiness of
guarantors, insurers, or other forms of credit enhancement on the
obligation and takes into account the currency in which the obligation is
denominated. The opinion reflects S&P Global Ratings’ view of the obligor’s
capacity
and willingness to meet its financial commitments as they come due, and this
opinion may assess terms, such as collateral security and subordination,
which could affect ultimate payment in the event of default.
Issue
ratings are an assessment of default risk but may incorporate an assessment of
relative seniority or ultimate recovery in the event of default. Junior
obligations are typically rated lower than senior obligations, to reflect the
lower priority in bankruptcy.
Note that
the content of this Appendix A, to the extent that it relates to the ratings
determined by S&P Global Ratings, is derived directly from S&P
Global
Ratings’ electronic publication of “S&P’s Global Ratings Definitions,” which
is available at: https://www.standardandpoors.com/en_US/web/guest/article/-/view/sourceId/504352.
Fitch. Fitch’s
opinions are forward looking and include Fitch’s views of future performance. In
many cases, these views on future performance may include
forecasts, which may in turn (i) be informed by non-disclosable management
projections, (ii) be based on a trend (sector or wider economic cycle) at a
certain stage in the cycle, or (iii) be based on historical performance. As a
result, while ratings may include cyclical considerations and attempt to
assess the likelihood of repayment at “ultimate/final maturity,” material
changes in economic conditions and expectations (for a particular issuer) may
result in a rating change.
The terms
“investment grade” and “speculative grade” have established themselves over time
as shorthand to describe the categories ‘AAA’ to ‘BBB’ (investment
grade) and ‘BB’ to ‘D’ (speculative grade). The terms investment grade and
speculative grade are market conventions and do not imply any recommendation
or endorsement of a specific security for investment purposes. Investment grade
categories indicate relatively low to moderate credit
risk, while ratings in the speculative categories either signal a higher level
of credit risk or that a default has already occurred. For the convenience
of investors, Fitch may also include issues relating to a rated issuer that are
not and have not been rated on its web page. Such issues are also
denoted as ‘NR’.
Note that
the content of this Appendix A, to the extent that it relates to the ratings
determined by Fitch, is derived directly from Fitch’s electronic publication
of “Definitions of Ratings and Other Forms of Opinion” which is available at:
https://www.fitchratings.com/products/rating-definitions.
GENERAL
PURPOSE RATINGS
LONG-TERM
ISSUE RATINGS
MOODY’S GLOBAL LONG-TERM RATING
SCALE
Long-term
ratings are assigned to issuers or obligations with an original maturity of one
year or more and reflect both on the likelihood of a default or impairment
on contractual financial obligations and the expected financial loss suffered in
the event of default or impairment.
Aaa:
Obligations rated Aaa are judged to be of the highest quality, subject to the
lowest level of credit risk.
Aa:
Obligations rated Aa are judged to be of high quality and are subject to very
low credit risk.
A:
Obligations rated A are considered upper-medium grade and are subject to low
credit risk.
Baa:
Obligations rated Baa are judged to be medium-grade and subject to moderate
credit risk and as such may possess certain speculative characteristics.
Ba:
Obligations rated Ba are judged to be speculative and are subject to substantial
credit risk.
B:
Obligations rated B are considered speculative and are subject to high credit
risk.
Caa:
Obligations rated Caa are judged to be speculative of poor standing and are
subject to very high credit risk.
Ca:
Obligations rated Ca are highly speculative and are likely in, or very near,
default, with some prospect of recovery of principal and interest.
C:
Obligations rated C are the lowest rated and are typically in default, with
little prospect for recovery of principal or interest.
Note:
Addition of a Modifier 1, 2 or 3: Moody’s
appends numerical modifiers 1, 2 and 3 to each generic rating classification
from Aa through Caa. The
modifier 1 indicates that the obligation ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3
indicates a ranking in the lower end of that generic rating category.
Additionally, a “(hyb)” indicator is appended to all ratings of hybrid
securities
issued by banks, insurers, finance companies, and securities firms. By their
terms, hybrid securities allow for the omission of scheduled dividends,
interest, or principal payments, which can potentially result in impairment if
such an omission occurs. Hybrid securities may also be subject to
contractually allowable write-downs of principal that could result in
impairment.
Together
with the hybrid indicator, the long-term obligation rating assigned to a hybrid
security is an expression of the relative credit risk associated with that
security.
S&P GLOBAL RATINGS LONG-TERM ISSUE CREDIT
RATINGS
Long-term
ratings are assigned to issuers or obligations with an original maturity of one
year or more and reflect both on the likelihood of a default or impairment
on contractual financial obligations and the expected financial loss suffered in
the event of default or impairment.
AAA: An
obligation rated ‘AAA’ has the highest rating assigned by S&P Global
Ratings. The obligor’s capacity to meet its financial commitment on the
obligation
is extremely strong.
AA: An
obligation rated ‘AA’ differs from the highest-rated obligations only to a small
degree. The obligor’s capacity to meet its financial commitment on the
obligation is very strong.
A: An
obligation rated ‘A’ is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor’s capacity to meet its financial
commitment on the obligation is still strong.
BBB: An
obligation rated ‘BBB’ exhibits adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely to
weaken the obligor’s capacity to meet its financial commitments on the
obligation.
BB, B,
CCC, CC and C:
Obligations rated ‘BB’, ‘B’, ‘CCC’ ‘CC’ and ‘C’ are regarded as having
significant speculative characteristics. ‘BB’ indicates the least
degree of speculation and ‘C’ the highest. While such obligations will likely
have some quality and protective characteristics, these may be outweighed
by large uncertainties or major exposures to adverse conditions.
BB: An
obligation rated ‘BB’ is less vulnerable to nonpayment than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions that could lead to the obligor’s
inadequate capacity to meet its financial commitment on the obligation.
B: An
obligation rated ‘B’ is more vulnerable to nonpayment than obligations rated
‘BB’, but the obligor currently has the capacity to meet its financial
commitments
on the obligation. Adverse business, financial, or economic conditions will
likely impair the obligor’s capacity or willingness to meet its financial
commitments on the obligation.
CCC: An
obligation rated ‘CCC’ is currently vulnerable to nonpayment and is dependent
upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitments on the obligation. In the event of
adverse business, financial or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitments on the
obligation.
CC: An
obligation rated ‘CC’ is currently highly vulnerable to nonpayment. The ‘CC’
rating is used when a default has not yet occurred but S&P Global
Ratings
expects default to be a virtual certainty, regardless of the anticipated time to
default.
C: An
obligation rated ‘C’ is currently highly vulnerable to nonpayment, and the
obligation is expected to have lower relative seniority or lower ultimate
recovery
compared to obligations that are rated higher.
D: An
obligation rated ‘D’ is in default or in breach of an imputed promise. For
non-hybrid capital instruments, the ‘D’ rating category is used when
payments on
an obligation are not made on the date due, unless S&P Global Ratings
believes that such payments will be made within five business days in the
absence of a stated grace period or within the earlier of the stated grace
period or 30 calendar days. The ‘D’ rating also will be used upon the filing
of a bankruptcy petition or taking of similar action and where default on an
obligation is a virtual certainty, for example due to automatic stay
provisions.
An obligation’s rating is lowered to ‘D’ if it is subject to a distressed
exchange offer.
Note:
Addition of a Plus (+) or minus (-) sign: The
ratings from ‘AA’ to ‘CCC’ may be modified by the addition of a plus (+) or
minus (-) sign to show relative
standing within the major rating categories.
Dual
Ratings – Dual
ratings may be assigned to debt issues that have a put option or demand feature.
The first component of the rating addresses the
likelihood of repayment of principal and interest as due, and the second
component of the rating addresses only the demand feature. The first
component
of the rating can relate to either a short-term or long-term transaction and
accordingly use either short-term or long-term rating symbols. The second
component of the rating relates to the put option and is assigned a short-term
rating symbol (for example, ‘AAA/A-1+’ or ‘A-1+/A-1’). With U. S.
municipal short-term demand debt, the U.S. municipal short-term note rating
symbols are used for the first component of the rating (for example,
‘SP-1+/A-1+’).
FITCH CORPORATE FINANCE OBLIGATIONS –
LONG-TERM RATING SCALES
Ratings of
individual securities or financial obligations of a corporate issuer address
relative vulnerability to default on an ordinal scale. In addition, for
financial
obligations in corporate finance, a measure of recovery given default on that
liability is also included in the rating assessment. This notably applies to
covered bond ratings, which incorporate both an indication of the probability of
default and of the recovery given a default of this debt instrument.
AAA:
Highest
credit quality. ‘AAA’
ratings denote the lowest expectation of credit risk. They are assigned only in
cases of exceptionally strong capacity
for payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.
AA:
Very
high credit quality. ‘AA’
ratings denote expectations of very low credit risk. They indicate very strong
capacity for payment of financial commitments.
This capacity is not significantly vulnerable to foreseeable
events.
A:
High
credit quality. ‘A’
ratings denote expectations of low credit risk. The capacity for payment of
financial commitments is considered strong. This
capacity may, nevertheless, be more vulnerable to adverse business or economic
conditions than is the case for higher ratings.
BBB:
Good
credit quality. ‘BBB’
ratings indicate that expectations of credit risk are currently low. The
capacity for payment of financial commitments
is considered adequate but adverse business or economic conditions are more
likely to impair this capacity.
BB:
Speculative. ‘BB’
ratings indicate an elevated vulnerability to credit risk, particularly in the
event of adverse changes in business or economic conditions
over time; however, business or financial alternatives may be available to allow
financial commitments to be met.
B:
Highly
speculative. ‘B’
ratings indicate that material credit risk is present.
CCC:
Substantial
credit risk. “CCC”
ratings indicate that substantial credit risk is present.
CC:
Very
high levels of credit risk. “CC”
ratings indicate very high levels of credit risk.
C:
Exceptionally
high levels of credit risk. “C”
indicates exceptionally high levels of credit risk.
Corporate
finance defaulted obligations typically are not assigned ‘RD’ or ‘D’ ratings but
are instead rated in the ‘CCC’ to ‘C’ rating categories, depending
on their recovery prospects and other relevant characteristics. This approach
better aligns obligations that have comparable overall expected
loss but varying vulnerability to default and loss.
Note:
Addition of a Plus (+) or minus (-) sign: Within
rating categories, Fitch may use modifiers. The modifiers “+” or “-” may be
appended to a rating to
denote relative status within major rating categories. For example, the rating
category ‘AA’ has three notch-specific rating levels (‘AA+’; ‘AA’; ‘AA-’; each
a rating level). Such suffixes are not added to ‘AAA’ ratings and ratings below
the ‘CCC’ category. For the short-term rating category of ‘F1’, a ‘+’ may be
appended. For Viability Ratings, the modifiers ‘+’ or ‘-’ may be appended to a
rating to denote relative status within categories from ‘aa’ to ‘ccc’.
DBRS
R-1
(high): Short-term
debt rated R-1 (high) is of the highest credit quality, and indicates an entity
possessing unquestioned ability to repay current liabilities
as they fall due. Entities rated in this category normally maintain strong
liquidity positions, conservative debt levels, and profitability that is
both stable
and above average. Companies achieving an R-1 (high) rating are normally leaders
in structurally sound industry segments with proven track
records, sustainable positive future results and no substantial qualifying
negative factors. Given the extremely tough definition DBRS has established
for an R-1 (high), few entities are strong enough to achieve this
rating.
R-1
(middle): Short-term
debt rated R-1 (middle) is of superior credit quality and, in most cases,
ratings in this category differ from R-1 (high) credits by only a
small degree. Given the extremely tough definition DBRS has established for the
R-1 (high) category, entities rated R-1 (middle) are also
considered
strong credits, and typically exemplify above average strength in key areas of
consideration for the timely repayment of short-term liabilities.
R-1
(low): Short-term
debt rated R-1 (low) is of satisfactory credit quality. The overall strength and
outlook for key liquidity, debt and profitability ratios is
not normally as favourable as with higher rating categories, but these
considerations are still respectable. Any qualifying negative factors that
exist are
considered manageable, and the entity is normally of sufficient size to have
some influence in its industry.
R-2
(high): Short-term
debt rated R-2 (high) is considered to be at the upper end of adequate credit
quality. The ability to repay obligations as they mature
remains acceptable, although the overall strength and outlook for key liquidity,
debt and profitability ratios is not as strong as credits rated in the R-1
(low) category. Relative to the latter category, other shortcomings often
include areas such as stability, financial flexibility, and the relative size
and market
position of the entity within its industry.
R-2
(middle): Short-term
debt rated R-2 (middle) is considered to be of adequate credit quality. Relative
to the R-2 (high) category, entities rated R-2 (middle)
typically have some combination of higher volatility, weaker debt or liquidity
positions, lower future cash flow capabilities, or are negatively impacted by
a weaker industry. Ratings in this category would be more vulnerable to adverse
changes in financial and economic conditions.
R-2
(low): Short-term
debt rated R-2 (low) is considered to be at the lower end of adequate credit
quality, typically having some combination of challenges
that are not acceptable for an R-2 (middle) credit. However, R-2 (low) ratings
still display a level of credit strength that allows for a higher rating than
the R-3 category, with this distinction often reflecting the issuer’s liquidity
profile.
R-3: Short-term
debt rated R-3 is considered to be at the lowest end of adequate credit quality,
one step up from being speculative. While not yet defined as
speculative, the R-3 category signifies that although repayment is still
expected, the certainty of repayment could be impacted by a variety of possible
adverse developments, many of which would be outside of the issuer’s control.
Entities in this area often have limited access to capital markets and
also may have limitations in securing alternative sources of liquidity,
particularly during periods of weak economic conditions.
R-4: Short-term
debt rated R-4 is speculative. R-4 credits tend to have weak liquidity and debt
ratios, and the future trend of these ratios is also unclear.
Due to its speculative nature, companies with R-4 ratings would normally have
very limited access to alternative sources of liquidity. Earnings and cash
flow would typically be very unstable, and the level of overall profitability of
the entity is also likely to be low. The industry environment may be
weak, and
strong negative qualifying factors are also likely to be present.
R-5: Short-term
debt rated R-5 is highly speculative. There is a reasonably high level of
uncertainty as to the ability of the entity to repay the obligations
on a continuing basis in the future, especially in periods of economic recession
or industry adversity. In some cases, short-term debt rated R-5 may
have challenges that if not corrected, could lead to default.
D: A security
rated D implies the issuer has either not met a scheduled payment or the issuer
has made it clear that it will be missing such a payment in the near
future. In some cases, DBRS may not assign a D rating under a bankruptcy
announcement scenario, as allowances for grace periods may exist in
the underlying legal documentation. Once assigned, the D rating will continue as
long as the missed payment continues to be in arrears, and until such
time as the rating is discontinued or reinstated by DBRS.
CORPORATE
AND TAX-EXEMPT COMMERCIAL PAPER RATINGS
SHORT-TERM
ISSUE RATINGS
MOODY’S GLOBAL SHORT-TERM RATING
SCALE
Ratings
assigned on Moody’s global long-term and short-term rating scales are
forward-looking opinions of the relative credit risks of financial obligations
issued by non-financial corporates, financial institutions, structured finance
vehicles, project finance vehicles, and public sector entities. Short-term
ratings are assigned to obligations with an original maturity of thirteen months
or less and reflect both the likelihood of a default or impairment
on contractual financial obligations and the expected financial loss suffered in
the event of default or impairment.
Moody’s
employs the following designations to indicate the relative repayment ability of
rated issuers:
P-1: Issuers
(or supporting institutions) rated Prime-1 have a superior ability to repay
short-term debt obligations.
P-2: Issuers
(or supporting institutions) rated Prime-2 have a strong ability to repay
short-term debt obligations.
P-3: Issuers
(or supporting institutions) rated Prime-3 have an acceptable ability to repay
short-term obligations.
NP: Issuers
(or supporting institutions) rated Not Prime do not fall within any of the Prime
rating categories.
The
following table indicates the long-term ratings consistent with different
short-term ratings when such long-term ratings exist. (Note: Structured
finance
short-term ratings are usually based either on the short-term rating of a
support provider or on an assessment of cash flows available to retire
the
financial obligation).
S&P GLOBAL RATINGS’ SHORT-TERM ISSUE
CREDIT RATINGS
S&P
Global Ratings’ short-term ratings are generally assigned to those obligations
considered short-term in the relevant market. Short-term ratings are also
used to indicate the creditworthiness of an obligor with respect to put features
on long-term obligations. Medium term notes are assigned long-term
ratings. Ratings are graded into several categories, ranging from ‘A’ for the
highest-quality obligations to ‘D’ for the lowest. These categories are as
follows:
A-1: A
short-term obligation rated ‘A-1’ is rated in the highest category by S&P
Global Ratings. The obligor’s capacity to meet its financial commitment
on the
obligation is strong. Within this category, certain obligations are designated
with a plus sign (+). This indicates that the obligor’s capacity to meet its
financial commitments on these obligations is extremely strong.
A-2: A
short-term obligation rated ‘A-2’ is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor’s capacity to meet
its financial commitments on the obligation is satisfactory.
A-3: A
short-term obligation rated ‘A-3’ exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more
likely to weaken an obligor’s capacity to meet its financial commitments on the
obligation.
B: A
short-term obligation rated ‘B’ is regarded as vulnerable and has significant
speculative characteristics. The obligor currently has the capacity to
meet its
financial commitments; however, it faces major ongoing uncertainties that could
lead to the obligor’s inadequate capacity to meet its financial commitments.
C: A
short-term obligation rated ‘C’ is currently vulnerable to nonpayment and is
dependent upon favorable business, financial, and economic conditions
for the obligor to meet its financial commitments on the
obligation.
D: A
short-term obligation rated ‘D’ is in default or in breach of an imputed
promise. For non-hybrid capital instruments, the ‘D’ rating category is used
when
payments on an obligation are not made on the date due, unless S&P Global
Ratings believes that such payments will be made within any stated grace
period. However, any stated grace period longer than five business days will be
treated as five business days. The ‘D’ rating also will be used upon the
filing of a bankruptcy petition or the taking of a similar action and where
default on an obligation is a virtual certainty, for example due to automatic
stay provisions. An obligation’s rating is lowered to ‘D’ if it is subject to a
distressed exchange offer.
Dual
Ratings - Dual
ratings may be assigned to debt issues that have a put option or demand feature.
The first component of the rating addresses the likelihood
of repayment of principal and interest as due, and the second component of the
rating addresses only the demand feature. The first component
of the rating can relate to either a short-term or long-term transaction and
accordingly use either short-term or long-term rating symbols. The second
component of the rating relates to the put option and is assigned a short-term
rating symbol (for example, ‘AAA/A-1+’ or ‘A-1+/A-1’). With U.S.
municipal short-term demand debt, the U.S. municipal short-term note rating
symbols are used for the first component of the rating (for example,
‘SP-1+/A-1+’).
FITCH’S SHORT-TERM ISSUER OR OBLIGATION
RATINGS
A
short-term issuer or obligation rating is based in all cases on the short-term
vulnerability to default of the rated entity and relates to the capacity to
meet
financial obligations in accordance with the documentation governing the
relevant obligation. Short-term deposit ratings may be adjusted for loss
severity.
Short-term deposit ratings may be adjusted for loss severity. Short-Term Ratings
are assigned to obligations whose initial maturity is viewed as “short
term” based on market convention. Typically, this means up to 13 months for
corporate, sovereign, and structured obligations, and up to 36 months for
obligations in U.S. public finance markets.
F1: Highest
short-term credit quality.
Indicates
the strongest intrinsic capacity for timely payment of financial commitments;
may have an added (“+”) to denote any exceptionally strong credit
feature.
F2: Good
short-term credit quality.
Good
intrinsic capacity for timely payment of financial commitments.
F3: Fair
short-term credit quality.
The
intrinsic capacity for timely payment of financial commitments is
adequate.
B:
Speculative short-term credit quality.
Minimal
capacity for timely payment of financial commitments, plus heightened
vulnerability to near term adverse changes in financial and economic
conditions.
C: High
short-term default risk.
Default is
a real possibility.
RD: Restricted
default.
Indicates
an entity that has defaulted on one or more of its financial commitments,
although it continues to meet other financial obligations. Typically
applicable
to entity ratings only.
D:
Default.
Indicates a
broad-based default event for an entity, or the default of a short-term
obligation.
TAX-EXEMPT
NOTE RATINGS
MOODY’S U.S. MUNICIPAL SHORT-TERM DEBT
RATINGS
While the
global short-term ‘prime’ rating scale is applied to US municipal tax-exempt
commercial A-8 paper, these programs are typically backed by external
letters of credit or liquidity facilities and their short-term prime ratings
usually map to the long-term rating of the enhancing bank or financial
institution
and not to the municipality’s rating. Other short-term municipal obligations,
which generally have different funding sources for repayment, are rated
using two additional short-term rating scales (i.e., the MIG and VMIG scale
discussed below).
The
Municipal Investment Grade (MIG) scale is used to rate US municipal bond
anticipation notes of up to five years maturity. Municipal notes rated on
the MIG
scale may be secured by either pledged revenues or proceeds of a take-out
financing received prior to note maturity. MIG ratings expire at the
maturity of
the obligation, and the issuer’s long-term rating is only one consideration in
assigning the MIG rating. MIG ratings are divided into three levels—MIG
1 through MIG 3—while speculative grade short-term obligations are designated
SG.
MIG
1: This
designation denotes superior credit quality. Excellent protection is afforded by
established cash flows, highly reliable liquidity support, or demonstrated
broad-based access to the market for refinancing.
MIG
2: This
designation denotes strong credit quality. Margins of protection are ample,
although not as large as in the preceding group.
MIG
3: This
designation denotes acceptable credit quality. Liquidity and cash-flow
protection may be narrow, and market access for refinancing is likely to
be less well-established.
SG: This
designation denotes speculative-grade credit quality. Debt instruments in this
category may lack sufficient margins of protection.
Variable
Municipal Investment Grade (VMIG) ratings of demand obligations with
unconditional liquidity support are mapped from the short-term debt rating (or
counterparty assessment) of the support provider, or the underlying obligor in
the absence of third party liquidity support, with VMIG 1 corresponding
to P-1, VMIG 2 to P-2, VMIG 3 to P-3 and SG to not prime. For example, the VMIG
rating for an industrial revenue bond with Company XYZ as the
underlying obligor would normally have the same numerical modifier as Company
XYZ’s prime rating. Transitions of VMIG ratings of demand obligations
with conditional liquidity support, as shown in the diagram below, differ from
transitions on the Prime scale to reflect the risk that external liquidity
support will terminate if the issuer’s long-term rating drops below investment
grade.
VMIG
1: This
designation denotes superior credit quality. Excellent protection is afforded by
the superior short-term credit strength of the liquidity provider
and structural and legal protections that ensure the timely payment of purchase
price upon demand.
VMIG
2: This
designation denotes strong credit quality. Good protection is afforded by the
strong short-term credit strength of the liquidity provider and
structural and legal protections that ensure the timely payment of purchase
price upon demand.
VMIG
3: This
designation denotes acceptable credit quality. Adequate protection is afforded
by the satisfactory short-term credit strength of the liquidity
provider and structural and legal protections that ensure the timely payment of
purchase price upon demand.
SG: This
designation denotes speculative-grade credit quality. Demand features rated in
this category may be supported by a liquidity provider that does not
have an investment grade short-term rating or may lack the structural and/or
legal protections necessary to ensure the timely payment of purchase
price upon demand.
* For VRDBs
supported with conditional liquidity support, short-term ratings transition down
at higher long-term ratings to reflect the risk of termination
of liquidity support as a result of a downgrade below investment
grade.
VMIG
ratings of VRDBs with unconditional liquidity support reflect the short-term
debt rating (or counterparty assessment) of the liquidity support provider
with VMIG 1 corresponding to P-1, VMIG 2 to P-2, VMIG 3 to P-3 and SG to not
prime.
For more
complete discussion of these rating transitions, please see Annex B of Moody’s
Methodology titled Variable Rate Instruments Supported by Conditional
Liquidity Facilities.
S&P GLOBAL RATINGS’ MUNICIPAL SHORT-TERM
NOTE RATINGS
MUNICIPAL SHORT-TERM NOTE
RATINGS
An S&P
Global Ratings municipal note rating reflects S&P Global Ratings’ opinion
about the liquidity factors and market access risks unique to the notes.
Notes due in three years or less will likely receive a note rating. Notes with
an original maturity of more than three years will most likely receive a
long-term
debt rating. In determining which type of rating, if any, to assign, S&P
Global Ratings’ analysis will review the following considerations:
• |
Amortization
schedule – the larger the final maturity relative to other maturities, the
more likely it will be treated as a note;
and |
• |
Source
of payment – the more dependent the issue is on the market for its
refinancing, the more likely it will be treated as a
note. |
Note rating
symbols are as follows:
SP-1: Strong
capacity to pay principal and interest. An issue determined to possess a very
strong capacity to pay debt service is given a plus (+) designation.
SP-2:
Satisfactory capacity to pay principal and interest, with some vulnerability to
adverse financial and economic changes over the term of the notes.
SP-3:
Speculative capacity to pay principal and interest.
D: ‘D’ is
assigned upon failure to pay the note when due, completion of a distressed
exchange offer, or the filing of a bankruptcy petition or the taking
of similar
action and where default on an obligation is a virtual certainty, for example
due to automatic stay provisions.
FITCH PUBLIC FINANCE
RATINGS
See FITCH
SHORT-TERM ISSUER OR OBLIGATIONS RATINGS above.
APPENDIX
B – PORTFOLIO MANAGER INFORMATION
BOSTON
PARTNERS GLOBAL INVESTORS, INC.
(“Boston
Partners”)
Disciplined
Value Fund
Disciplined
Value Mid Cap Fund
PORTFOLIO
MANAGER AND OTHER ACCOUNTS MANAGED
The
following table shows the portfolio managers at Boston Partners who are jointly
and primarily responsible for the day-to-day management of the stated
funds’ portfolios.
|
|
Fund |
Portfolio
Managers |
Disciplined
Value Fund |
David
T. Cohen, CFA, Mark E. Donovan, CFA, Stephanie McGirr, David J.
Pyle,
CFA, and Joshua White, CFA |
Disciplined
Value Mid Cap Fund |
Joseph
F. Feeney, Jr. CFA and Steven L. Pollack,
CFA |
The
following table provides information regarding other accounts for which each
portfolio manager listed above has day-to-day management responsibilities.
Accounts are grouped into three categories: (i) other investment companies (and
series thereof); (ii) other pooled investment vehicles; and (iii)
other accounts. To the extent that any of these accounts pays advisory fees that
are based on account performance (“performance-based fees”),
information on those accounts is specifically broken out. In addition, any
assets denominated in foreign currencies have been converted into U.S.
dollars using the exchange rates as of the applicable date. Also shown below the
table is each portfolio manager’s investment in the fund he or
she
manages and
similarly managed accounts.
The
following table provides information as of March 31, 2022:
|
|
|
|
|
|
|
|
Other
Registered Investment Companies |
Other
Pooled Investment Vehicles |
Other
Accounts |
Portfolio
Manager |
Number
of Accounts |
Assets
(in millions) |
Number
of Accounts |
Assets
(in millions) |
Number
of Accounts |
Assets
(in millions) |
David
T. Cohen |
4 |
$13,750 |
2 |
$2,623 |
199 |
$15,173 |
Mark
E. Donovan |
4 |
$13,750 |
2 |
$2,623 |
199 |
$15,173 |
Joseph
F. Feeney, Jr. |
7 |
$25,647 |
1 |
$882 |
43 |
$5,330 |
Stephanie
McGirr |
4 |
$13,750 |
2 |
$2,623 |
199 |
$15,173 |
Steven
L. Pollack |
5 |
$24,767 |
1 |
$882 |
43 |
$5,330 |
David
J. Pyle |
4 |
$13,750 |
2 |
$2,623 |
199 |
$15,173 |
Joshua
White |
4 |
$13,750 |
2 |
$2,623 |
199 |
$15,173 |
Performance-Based
Fees for Other Accounts Managed. Of the
accounts listed in the table above, those for which the subadvisor receives a
fee based on
investment performance are listed in the table below.
|
|
|
|
|
|
|
|
Other
Registered Investment Companies |
Other
Pooled Investment Vehicles |
Other
Accounts |
Portfolio
Manager |
Number
of Accounts |
Assets
(in millions) |
Number
of Accounts |
Assets
(in millions) |
Number
of Accounts |
Assets
(in millions) |
David
T. Cohen |
0 |
$0 |
0 |
$0 |
4 |
$1,007 |
Mark
E. Donovan |
0 |
$0 |
0 |
$0 |
4 |
$1,007 |
Joseph
F. Feeney, Jr. |
0 |
$0 |
0 |
$0 |
1 |
$29 |
Stephanie
McGirr |
0 |
$0 |
0 |
$0 |
4 |
$1,007 |
Steven
L. Pollack |
0 |
$0 |
0 |
$0 |
1 |
$29 |
David
J. Pyle |
0 |
$0 |
0 |
$0 |
4 |
$1,007 |
Joshua
White |
0 |
$0 |
0 |
$0 |
4 |
$1,007 |
Ownership
of the Funds and Similarly Managed Accounts
The
following table shows the dollar range of fund shares and shares of similarly
managed accounts beneficially owned by the portfolio managers listed
above as of March 31, 2022. For
purposes of this table, “similarly managed accounts” include all accounts that
are managed (i) by the same portfolio
managers that are jointly and primarily responsible for the day-to-day
management of the fund; and (ii) with an investment style, objective,
policies
and strategies substantially similar to those that are used to manage the fund.
The portfolio manager’s ownership of fund shares is stated in the
footnote that follows the table.
|
|
Name |
Dollar
Range of Shares Owned |
Disciplined
Value Fund1
|
David
T. Cohen |
$100.001
- $500,000 |
Mark
E. Donovan |
Over
$1,000,000 |
Stephanie
McGirr |
$100.001
- $500,000 |
David
J. Pyle |
Over
$1,000,000 |
Joshua
White |
$500,001
- $1,000,000 |
Disciplined
Value Mid Cap Fund2
|
Joseph
F. Feeney, Jr |
$100.001
- $500,000 |
Steven
L. Pollack |
$500,001
- $1,000,000 |
1 |
As of
March 31, 2022,
David T. Cohen, Mark E. Donovan, Stephanie McGirr, David
J. Pyle,
and Joshua White beneficially
owned $100,001 - $500,000, over $1 million, $100,001
- $500,000, over
$1 million,
and $500,001 - $1,000,000 of
shares of the Fund, respectively. |
2 |
As of
March 31, 2022,
Joseph F. Feeney, Jr. and Stephen L. Pollack beneficially owned $100,001 -
$500,000 and $500,001 - $1,000,000 of shares of the Fund, respectively. |
POTENTIAL
CONFLICTS OF INTEREST
Compensation
is determined based on several factors including performance, productivity, firm
results and teamwork. Portfolio managers benefit from Boston
Partners revenues and profitability. But no portfolio managers are compensated
based directly on fee revenue earned by Boston Partners on
particular accounts in a way that would create a material conflict of interest
in favoring particular accounts over other accounts.
Execution
and research services provided by brokers may not always be utilized in
connection with the fund or other client accounts that may have provided
the commission or a portion of the commission paid to the broker providing the
services. Boston Partners allocates brokerage commissions for these
services in a manner that it believes is fair and equitable and consistent with
its fiduciary obligations to each of its clients.
Boston
Partners views all assets under management in a particular investment strategy
as one portfolio. When the firm decides that a given security warrants a
1% position in client portfolios, it buys 1% in all portfolios unless individual
client guidelines prohibit the firm from purchasing the security for such
portfolio. Boston Partners generally aggregates the target share amount for each
account into one large order and distributes the shares on a prorated
basis across the accounts.
If a
portfolio manager identifies a limited investment opportunity that may be
suitable for more than one fund or other client account, the fund may not
be able to
take full advantage of that opportunity. To mitigate this conflict of interest,
Boston Partners aggregates orders of the funds it advises with orders from
each of its other client accounts in order to ensure that all clients are
treated fairly and equitably over time and consistent with its fiduciary
obligations to each of its clients.
Accounts
are generally precluded from simultaneously holding a security long and short.
There are certain circumstances that would permit a long/short
portfolio to take a short position in a security that is held long in another
strategy. This happens very infrequently, and the contra position is
generally
not related to the fundamental views of the security (i.e. - initiating a long
position in a security at year-end to take advantage of tax-loss selling as
a short-term investment, or initiating a position based solely on its relative
weight in the benchmark). However, in certain situations, the investment
constraints of a strategy, including but not limited to country, region,
industry, or benchmark, may result in a different investment thesis for the
same security. Each situation is fully vetted and approved by the firm’s Chief
Investment Officer or his designee.
COMPENSATION
All
investment professionals receive a compensation
package comprised of an industry competitive base salary,
a
discretionary bonus and long-term incentives.
Through our
bonus
program, key investment professionals are rewarded primarily for strong
investment performance. We believe
this aligns our
Boston Partners team firmly with our clients’ objectives and provides the
financial and work environment incentives which keep our teams in place and
has led to industry leading investment staff continuity and extremely low
unplanned staff turnover.
Typically,
bonuses are based upon a combination of one or more of the following four
criteria:
• |
Individual
Contribution: an
evaluation of the professional’s individual contribution based on the
expectations established at the beginning of each year; |
• |
Product
Investment Performance:
performance of the investment product(s) with which the individual is
involved versus the pre-designed index, based
on the excess return; |
• |
Investment
Team Performance: the
financial results of the investment group with our client’s
assets; |
• |
Firm-wide
Performance: the
overall financial performance of Boston
Partners. |
• |
Our
long-term incentive program effectively confers a significant 20-30%
ownership interest in the value of the business to key employees. Annual
awards
are made by the Compensation Committee and are meant to equate to an
additional 10-20% of the participants cash bonus
awards. |
The
compensation program focuses on long term performance with an emphasis on 3- and
5-year results. The timing of receiving deferred compensation
reinforces this emphasis. Roughly 50% of compensation is based on qualitative
measures and roughly 50% is based on quantitative measures.
These compensation percentages can vary based on an individual’s role in the
firm.
Total
revenues generated by any particular product affect the total available bonus
pool for the analysts and portfolio managers associated with that product.
The discretionary bonus assessment is conducted annually. In the case
of John Hancock Disciplined Value Fund, product investment performance
is based on the fund’s 1-, 3-, and 5-year performance compared to its market
benchmark, the Russell 1000 Value Index, and compared to its
consultant peer group for large cap value. In the case of John Hancock
Disciplined Value Mid Cap Fund, product investment performance is based on
the fund’s 1-, 3-, and 5-year performance compared to its market benchmark,
Russell Midcap Index and a consultant peer group for midcap value.
Returns are
evaluated on a pre-tax basis.
Firm.
Boston
Partners maintains a long-term incentive program which effectively confers a
20-30% ownership stake in Boston Partners and is funded by the
profitability and growth of the business. All investment professionals
participate in this plan which serves as a long-term wealth building tool
that aligns
the interests of our clients with the people responsible for managing their
portfolios.
Direct
Investments: Boston
Partners offers or sub-advises several mutual fund vehicles that allow portfolio
managers and other employees to invest directly
alongside our clients. In fact, it is common for senior portfolio managers to
invest $1 million or more in the strategy or strategies that they manage.
Direct investments are also facilitated through Boston Partner’s 401(k) plan as
Boston Partners managed mutual funds are widely available, investments
are entirely voluntary, and are significantly used within the plan.
Deferred
Compensation:
An
important aspect of Boston Partner’s incentive program is deferred compensation.
Annual incentive compensation as well as long-term incentive compensation
is deferred in part or in total for typically 3 to 5 years. Deferred
compensation promotes organizational stability and also facilitates significant
re-investment in Boston Partners strategies. Deferred compensation is invested
in established Boston Partners strategies. In addition, Boston
Partners utilizes deferred compensation to fund seed investments in new
investment offerings. This allows for the establishment of a portfolio,
the
building of a track record and ultimately bring a new investment strategy to the
marketplace.
EPOCH
INVESTMENT PARTNERS, INC.
(“Epoch”)
Global
Shareholder Yield Fund
PORTFOLIO
MANAGERS AND OTHER ACCOUNTS MANAGED
William W.
Priest, CFA,
John Tobin,
Ph.D., CFA,
Kera Van
Valen, CFA,
and Michael
A. Welhoelter,
CFA are jointly
and primarily responsible for the day-to-day
management of Global Shareholder Yield Fund’s portfolio.
The
following table provides information regarding other accounts for which each
portfolio manager listed above has day-to-day management responsibilities.
Accounts are grouped into three categories: (i) other investment companies (and
series thereof); (ii) other pooled investment vehicles; and (iii)
other accounts. To the extent that any of these accounts pays advisory fees that
are based on account performance (“performance-based fees”),
information on those accounts is specifically broken out. In addition, any
assets denominated in foreign currencies have been converted into U.S.
dollars using the exchange rates as of the applicable date. Also shown below the
table is each portfolio manager’s investment in the fund and similarly
managed accounts.
The
following table provides information as of March 31, 2022:
|
|
|
|
|
|
|
|
Other
Registered Investment Companies |
Other
Pooled Investment Vehicles |
Other
Accounts |
Portfolio
Manager |
Number
of Accounts |
Assets
(in millions) |
Number
of Accounts |
Assets
(in millions) |
Number
of Accounts |
Assets
(in millions) |
William
W. Priest |
6 |
$4,662 |
27 |
$8,169 |
74 |
$7,445 |
John
Tobin |
5 |
$4,590 |
11 |
$2,380 |
15 |
$3,672 |
Kera
Van Valen |
5 |
$4,590 |
11 |
$2,380 |
15 |
$3,672 |
Michael
A. Welhoelter |
7 |
$4,915 |
38 |
$11,937 |
77 |
$7,577 |
Performance-Based
Fees for Other Accounts Managed. Of the
accounts listed in the table above, those for which the subadvisor receives a
fee based on
investment performance are listed in the table below.
|
|
|
|
|
|
|
|
Other
Registered Investment Companies |
Other
Pooled Investment Vehicles |
Other
Accounts |
Portfolio
Manager |
Number
of Accounts |
Assets
(in millions) |
Number
of Accounts |
Assets
(in millions) |
Number
of Accounts |
Assets
(in millions) |
William
W. Priest |
0 |
$0 |
1 |
$60 |
5 |
$304 |
John
Tobin |
0 |
$0 |
0 |
$0 |
0 |
$0 |
Kera
Van Valen |
0 |
$0 |
0 |
$0 |
0 |
$0 |
Michael
A. Welhoelter |
0 |
$0 |
1 |
$60 |
5 |
$304 |
Ownership
of the Funds and Similarly Managed Accounts
The
following table shows the dollar range of fund shares and shares of similarly
managed accounts beneficially owned by the portfolio managers listed
above as of March 31, 2022. For
purposes of this table, “similarly managed accounts” include all accounts that
are managed (i) by the same portfolio
managers that are jointly and primarily responsible for the day-to-day
management of the fund; and (ii) with an investment style, objective,
policies
and strategies substantially similar to those that are used to manage the fund.
The portfolio manager’s ownership of fund shares is stated in the
footnote that follows the table.
|
|
Name |
Dollar
Range of Shares Owned1
|
William
W. Priest |
$150,001
- $200,000 |
John
Tobin |
$50,001
- $100,000 |
Kera
Van Valen |
$1 -
$50,000 |
Michael
A. Welhoelter |
$200,001
- $250,000 |
1 |
As of
March 31, 2022,
William W. Priest, John Tobin, Kera Van Valen, and Michael A. Welhoelter
beneficially owned $150,001
- $200,000, $50,001
- $100,000, $1 - $50,000,
and
200,001 - $250,000, respectively,
of the fund. |
POTENTIAL
CONFLICTS OF INTEREST
In Epoch’s
view, conflicts of interest may arise in managing the fund’s portfolio
investments, on the one hand, and the portfolios of Epoch’s other clients
and/or accounts (together “Accounts”), on the other. Set forth below is a brief
description of some of the material conflicts that may arise and Epoch’s
policy or procedure for handling them. Although Epoch has designed such
procedures to prevent and address conflicts, there is no guarantee that such
procedures will detect every situation in which a conflict arises.
The
management of multiple Accounts inherently means there may be competing
interests for the portfolio management team’s time and attention. Epoch seeks
to minimize this by utilizing one investment approach (i.e., classic value
investing), and by managing all Accounts on a product specific
basis.
Thus, all large cap value Accounts, whether they be fund accounts, institutional
accounts or individual accounts are managed using the same investment
discipline, strategy and proprietary investment model as the fund.
If the
portfolio management team identifies a limited investment opportunity that may
be suitable for more than one Account, the fund may not be able to take
full advantage of that opportunity. However, Epoch has adopted procedures for
allocating portfolio transactions across Accounts so that each Account is
treated fairly. First, all orders are allocated among portfolios of the same or
similar mandates at the time of trade creation/ initial order preparation.
Factors affecting allocations include availability of cash to existence of
client imposed trading restrictions or prohibitions, and the tax status of
the account. The only changes to the allocations made at the time of the
creation of the order, are if there is a partial fill for an order. Depending
upon the size of the execution, Epoch may choose to allocate the executed shares
through pro-rata breakdown, or on a random basis. As with all
trade allocations each Account generally receives pro rata allocations of any
new issue or IPO security that is appropriate for its investment objective.
Permissible reasons for excluding an account from an otherwise acceptable IPO or
new issue investment include the account having FINRA restricted
person status, lack of available cash to make the purchase, or a client imposed
trading prohibition on IPOs or on the business of the issuer.
With
respect to securities transactions for the Accounts, Epoch determines which
broker to use to execute each order, consistent with its duty to seek
best
execution. Epoch will bunch or aggregate like orders where to do so will be
beneficial to the Accounts. However, with respect to certain Accounts,
Epoch may
be limited by the client with respect to the selection of brokers or may be
instructed to direct trades through a particular broker. In these cases,
Epoch may place separate, non-simultaneous, transactions for the fund and
another Account, which may temporarily affect the market price of the
security or the execution of the transaction to the detriment one or the
other.
Conflicts
of interest may arise when members of the portfolio management team transact
personally in securities investments made or to be made for the fund or
other Accounts. To address this, Epoch has adopted a written Code of Ethics
designed to prevent and detect personal trading activities that may
interfere or conflict with client interests (including fund shareholders’
interests) or its current investment strategy. The Code of Ethics generally
requires
that most transactions in securities by Epoch’s Access Persons and their
spouses, whether or not such securities are purchased or sold on behalf of
the Accounts, be cleared prior to execution by appropriate approving parties and
compliance personnel. Securities transactions for Access Persons’
personal accounts also are subject to monthly reporting requirements, and annual
and quarterly certification requirements. Access Person is defined to
include persons who have access to non-public information about client
securities transactions, portfolio recommendations or holdings, and thus covers
all of Epoch’s full-time employees except those whose job functions are solely
clerical. In addition, no access person, including an investment
person, shall be permitted to effect a short term trade (i.e. to purchase and
subsequently sell within 21 calendar days for single name single
securities or 7 days for an EFT, or to sell and subsequently purchase within 21
calendar days) of securities which (i) are issued by a mutual fund which is
advised or sub-advised by Epoch, or (ii) are the same (or equivalent) securities
purchased or sold by or on behalf of the advisory accounts unless and
until the advisory accounts have effected a transaction which is the same as the
access person’s contemplated transaction. Finally, orders for
proprietary accounts (i.e., accounts of a Sub-Advisor’s principals, affiliates
or employees or their immediate family which are managed by Epoch) are subject
to written trade allocation procedures designed to ensure fair treatment to
client accounts.
Proxy
voting for the fund and the other Accounts’ securities holdings also may pose
certain conflicts. Epoch has identified the following areas of concern:
(1) Where Epoch manages the assets of a publicly traded company, and also holds
that company’s or an affiliated company’s securities in one or more
Accounts; (2) Where Epoch manages the assets of a proponent of a shareholder
proposal for a company whose securities are in one or more Accounts;
and (3) Where Epoch had a client relationship with an individual who is a
corporate director, or a candidate for a corporate directorship of a
public
company whose securities are in one or more client portfolios. Epoch’s proxy
policies provide for various methods of dealing with these and any other
conflict scenarios subsequently identified, including notifying clients and
seeking their consent or instructions on how to vote, and deferring to
the
recommendation of an independent third party where a conflict
exists.
Epoch
manages some Accounts under performance based fee arrangements. Epoch recognizes
that this type of incentive compensation creates the risk for
potential conflicts of interest. This structure may create an inherent pressure
to allocate investments having a greater potential for higher returns to
accounts of those clients paying the higher performance fee. To prevent
conflicts of interest associated with managing accounts with different
compensation structures, Epoch generally requires portfolio decisions to be made
on a product specific basis. Epoch also requires pre-allocation
of all client orders based on specific fee-neutral criteria set forth above.
Additionally, Epoch requires average pricing of all aggregated orders.
Finally, Epoch has adopted a policy prohibiting Portfolio Managers (and all
employees) from placing the investment interests of one client or a group of
clients with the same investment objectives above the investment interests of
any other client or group of clients with the same or similar investment
objectives.
COMPENSATION
Epoch seeks
to maintain a compensation program that is competitively positioned to attract,
retain and motivate all employees. Epoch employees receive a
base salary and an annual performance bonus, which is reviewed and determined
annually by Epoch’s Operating Committee with input from the
employee’s supervisor and Epoch’s Human Resources Department. The level of
compensation for each employee is based on a number of factors including
individual performance, firm performance and marketplace compensation analysis
and information.
For senior
employees, a portion of their annual performance bonus is deferred, typically
with a three-year vesting schedule, and invested in Epoch-managed
investment vehicles, Epoch Performance Units and TD Restricted Stock Units.
Investment team members are compensated based on the performance
of their strategy, their contribution to that performance, the overall
performance of the firm, and corporate citizenship. The Operating Committee
reviews product performance, including risk-adjusted returns over one- and
three-year periods in assessing an investment professional’s performance
and compensation. Each portfolio manager and analyst’s security selection and
weighting recommendations are also reviewed on an annual
basis.
MANULIFE
INVESTMENT MANAGEMENT (NORTH AMERICA) LIMITED
(“Manulife
IM (NA)”)
Diversified
Real Assets Fund
PORTFOLIO
MANAGERS AND OTHER ACCOUNTS MANAGED
|
|
Fund
Managed |
Portfolio
Managers |
Diversified
Real Assets Fund |
Craig
Bethune, CFA and Diana Racanelli, CFA |
The
following table provides information regarding other accounts for which each
portfolio manager listed above has day-to-day management responsibilities.
Accounts are grouped into three categories: (i) other investment companies (and
series thereof); (ii) other pooled investment vehicles; and (iii)
other accounts. To the extent that any of these accounts pays advisory fees that
are based on account performance (“performance-based fees”),
information on those accounts is specifically broken out. In addition, any
assets denominated in foreign currencies have been converted into U.S.
dollars using the exchange rates as of the applicable date. Also shown below the
table is each portfolio manager’s investment in the fund and similarly
managed accounts.
The
following table provides information as of March 31, 2022:
|
|
|
|
|
|
|
|
Other
Registered Investment Companies |
Other
Pooled Investment Vehicles |
Other
Accounts |
Portfolio
Manager |
Number
of Accounts |
Assets
(in millions) |
Number
of Accounts |
Assets
(in millions) |
Number
of Accounts |
Assets
(in millions) |
Craig
Bethune |
0 |
$0 |
0 |
$0 |
0 |
$0 |
Diane
Racanelli |
0 |
$0 |
0 |
$0 |
0 |
$0 |
Performance-Based
Fees for Other Accounts Managed. Of the
accounts listed in the table above, those for which the subadvisor receives a
fee based on
investment performance are listed in the table below.
|
|
|
|
|
|
|
|
Other
Registered Investment Companies |
Other
Pooled Investment Vehicles |
Other
Accounts |
Portfolio
Manager |
Number
of Accounts |
Assets
(in millions) |
Number
of Accounts |
Assets
(in millions) |
Number
of Accounts |
Assets
(in millions) |
Craig
Bethune |
0 |
$0 |
0 |
$0 |
0 |
$0 |
Diane
Racanelli |
0 |
$0 |
0 |
$0 |
0 |
$0 |
Ownership
of the Fund and Similarly Managed Accounts
The
following table shows the dollar range of fund shares and shares of similarly
managed accounts beneficially owned by the portfolio managers listed
above as of March 31, 2022. For
purposes of this table, “similarly managed accounts” include all accounts that
are managed (i) by the same portfolio
managers that are jointly and primarily responsible for the day-to-day
management of the fund; and (ii) with an investment style, objective,
policies
and strategies substantially similar to those that are used to manage the fund.
The portfolio manager’s ownership of fund shares is stated in the
footnote that follows the table.
|
|
Name |
Dollar
Range of Shares Owned1
|
Craig
Bethune |
none |
Diana
Racanelli |
none |
1 |
As of
March 31, 2022,
neither Craig Bethune nor Diana Racanelli beneficially owned shares of the
Fund. |
POTENTIAL
CONFLICTS OF INTEREST
While funds
managed by each of the portfolio managers may have many similarities, Manulife
IM (NA) has adopted compliance procedures to manage potential
conflicts of interest such as allocation of investment opportunities and
aggregated trading.
COMPENSATION
Manulife IM
(NA) portfolio managers receive a competitive compensation package that consists
of base salary, performance based bonus and a Manulife
share ownership plan. The magnitude of the performance based bonus and
participation in equity ownership reflects to the seniority and role
of each
portfolio manager. Manulife IM (NA) seeks to ensure retention through
competitive compensation that rewards both individual and team performance.
The overall compensation package is targeted at the top of the second quartile
against our competitors as deemed through industry surveys. By
maximizing the performance bonus at the top of the second quartile, this
structure ensures that the portfolio managers do not incur undue risk in the
funds they manage.
MANULIFE
INVESTMENT MANAGEMENT (US) LLC (“Manulife IM (US)”)
Fundamental
Equity Income Fund
PORTFOLIO
MANAGERS AND OTHER ACCOUNTS MANAGED
The
portfolio managers of this Fund are as follows:
|
|
Fund
Managed |
Portfolio
Managers |
Fundamental
Equity Income Fund |
Michael
J. Mattioli, CFA, Nicholas P. Renart, Emory W. Sanders, Jr., CFA,
and
Jonathan T. White, CFA |
The
following table provides information regarding other accounts for which each
portfolio manager listed above has day-to-day management responsibilities.
Accounts are grouped into three categories: (i) other investment companies (and
series thereof); (ii) other pooled investment vehicles; and (iii)
other accounts. To the extent that any of these accounts pays advisory fees that
are based on account performance (“performance-based fees”),
information on those accounts is specifically broken out. In addition, any
assets denominated in foreign currencies have been converted into U.S.
dollars using the exchange rates as of the applicable date. Also shown below the
table is each portfolio manager’s investment in the fund and similarly
managed accounts.
The
following table provides information as of March 31, 2022:
|
|
|
|
|
|
|
|
Other
Registered Investment Companies |
Other
Pooled Investment Companies |
Other
Accounts |
Portfolio
Manager |
Number
of Accounts |
Assets
(in millions) |
Number
of Accounts |
Assets
(in millions) |
Number
of Accounts |
Assets
(in millions) |
Michael
J. Mattioli |
0 |
$0 |
2 |
$1,321 |
0 |
$0 |
Nicholas
P. Renart |
1 |
$801 |
0 |
$0 |
0 |
$0 |
Emory
W. Sanders, Jr. |
6 |
$9,904 |
44 |
$12,464 |
8 |
$3,239 |
Jonathan
T. White |
5 |
$9,103 |
38 |
$10,434 |
8 |
$3,239 |
Performance-Based
Fees for Other Accounts Managed. Of the
accounts listed in the table above, those for which the subadvisor receives a
fee based on
investment performance are listed in the table below.
|
|
|
|
|
|
|
|
Other
Registered Investment Companies |
Other
Pooled Investment Companies |
Other
Accounts |
Portfolio
Manager |
Number
of Accounts |
Assets
(in millions) |
Number
of Accounts |
Assets
(in millions) |
Number
of Accounts |
Assets
(in millions) |
Michael
J. Mattioli |
0 |
$0 |
0 |
$0 |
0 |
$0 |
Nicholas
P. Renart |
0 |
$0 |
0 |
$0 |
0 |
$0 |
Emory
W. Sanders, Jr. |
0 |
$0 |
0 |
$0 |
2 |
$592 |
Jonathan
T. White |
0 |
$0 |
0 |
$0 |
2 |
$592 |
Ownership
of the Funds and Similarly Managed Accounts
The
following table shows the dollar range of fund shares and shares of similarly
managed accounts beneficially owned by the portfolio managers listed
above as of March 31, 2022. For purposes of this table, “similarly managed
accounts” include all accounts that are managed (i) by the same portfolio
managers that are jointly and primarily responsible for the day-to-day
management of a fund, or by the same portfolio manager that is primarily
responsible for the day-to-day management of the fund, as applicable; and (ii)
with an investment style, objective, policies and strategies substantially
similar to those that are used to manage the fund. The portfolio manager’s
ownership of predecessor fund shares is stated in the footnote that
follows the table.
|
|
|
Fund |
Portfolio
Manager |
Dollar
Range of Shares Owned |
Fundamental
Equity Income Fund1
|
Michael
J. Mattioli |
None |
|
Nicholas
P. Renart |
None |
|
Emory
W. Sanders, Jr. |
None |
|
Jonathan
T. White |
None |
1 |
As of
March 31, 2022, Michael J. Mattioli, Nicholas P. Renart, Emory W. Sanders,
Jr. and Jonathan T. White beneficially owned $0, $0, $0 and $0 of shares,
respectively, of
Fundamental Equity Income Fund. |
POTENTIAL
CONFLICTS OF INTEREST
When a
portfolio manager is responsible for the management of more than one account,
the potential arises for the portfolio manager to favor one account
over another. The principal types of potential conflicts of interest that may
arise are discussed below. For the reasons outlined below, the funds do
not believe that any material conflicts are likely to arise out of a portfolio
manager’s responsibility for the management of the funds as well as
one or more
other accounts. The Advisor and Manulife IM (US) (the “Subadvisor”) have adopted
procedures that are intended to monitor compliance with the
policies referred to in the following paragraphs. Generally, the risks of such
conflicts of interests are increased to the extent that a portfolio manager has
a financial incentive to favor one account over another. The Advisor and
Subadvisor have structured their compensation arrangements in a manner
that is intended to limit such potential for conflicts of interests. See
“Compensation” below.
• |
A
portfolio manager could favor one account over another in allocating new
investment opportunities that have limited supply, such as initial public
offerings
and private placements. If, for example, an initial public offering that
was expected to appreciate in value significantly shortly after the
offering
was allocated to a single account, that account may be expected to have
better investment performance than other accounts that did not
receive
an allocation on the initial public offering. The Subadvisor has policies
that require a portfolio manager to allocate such investment opportunities
in an equitable manner and generally to allocate such investments
proportionately among all accounts with similar investment objectives. |
• |
A
portfolio manager could favor one account over another in the order in
which trades for the accounts are placed. If a portfolio manager
determines
to purchase a security for more than one account in an aggregate amount
that may influence the market price of the security, accounts that
purchased or sold the security first may receive a more favorable price
than accounts that made subsequent transactions. The less liquid the
market
for the security or the greater the percentage that the proposed aggregate
purchases or sales represent of average daily trading volume, the
greater
the potential for accounts that make subsequent purchases or sales to
receive a less favorable price. When a portfolio manager intends to
trade
the same security for more than one account, the policies of the
Subadvisor generally require that such trades be “bunched,” which means
that
the trades for the individual accounts are aggregated and each account
receives the same price. There are some types of accounts as to which
bunching
may not be possible for contractual reasons (such as directed brokerage
arrangements). Circumstances may also arise where the trader believes
that bunching the orders may not result in the best possible price. Where
those accounts or circumstances are involved, the Subadvisor will
place
the order in a manner intended to result in as favorable a price as
possible for such client. |
• |
A
portfolio manager could favor an account if the portfolio manager’s
compensation is tied to the performance of that account rather than all
accounts
managed by the portfolio manager. If, for example, the portfolio manager
receives a bonus based upon the performance of certain accounts
relative to a benchmark while other accounts are disregarded for this
purpose, the portfolio manager will have a financial incentive to seek
to
have the accounts that determine the portfolio manager’s bonus achieve the
best possible performance to the possible detriment of other accounts.
Similarly, if the Subadvisor receives a performance-based advisory fee,
the portfolio manager may favor that account, whether or not the
performance
of that account directly determines the portfolio manager’s compensation.
The investment performance on specific accounts is not a factor
in determining the portfolio manager’s compensation. See “Compensation”
below. Neither the Advisor nor the Subadvisor receives a performance-based
fee with respect to any of the accounts managed by the portfolio
managers. |
• |
A
portfolio manager could favor an account if the portfolio manager has a
beneficial interest in the account, in order to benefit a large client or
to compensate
a client that had poor returns. For example, if the portfolio manager held
an interest in an investment partnership that was one of the accounts
managed by the portfolio manager, the portfolio manager would have an
economic incentive to favor the account in which the portfolio
manager
held an interest. The Subadvisor imposes certain trading restrictions and
reporting requirements for accounts in which a portfolio manager
or certain family members have a personal interest in order to confirm
that such accounts are not favored over other
accounts. |
• |
If
the different accounts have materially and potentially conflicting
investment objectives or strategies, a conflict of interest may arise. For
example, if a
portfolio manager purchases a security for one account and sells the same
security short for another account, such trading pattern could
disadvantage
either the account that is long or short. In making portfolio manager
assignments, the Subadvisor seeks to avoid such potentially conflicting
situations. However, where a portfolio manager is responsible for accounts
with differing investment objectives and policies, it is possible
that
the portfolio manager will conclude that it is in the best interest of one
account to sell a portfolio security while another account continues to
hold
or increase the holding in such security. |
COMPENSATION
The
Subadvisor has adopted a system of compensation for portfolio managers and
others involved in the investment process that is applied systematically
among investment professionals. At the Subadvisor, the structure of compensation
of investment professionals is currently comprised of the
following basic components: base salary and short- and long-term incentives. The
following describes each component of the compensation package for
the individuals identified as a portfolio manager for the funds.
• |
Base
salary. Base compensation is fixed and normally reevaluated on an annual
basis. The Subadvisor seeks to set compensation at market rates,
taking
into account the experience and responsibilities of the investment
professional. |
• |
Incentives.
Only investment professionals are eligible to participate in the short-
and long-term incentive plan. Under the plan, investment professionals
are eligible for an annual cash award. The plan is intended to provide a
competitive level of annual bonus compensation that is tied to
the
investment professional achieving superior investment performance and
aligns the financial incentives of the Subadvisor and the investment
professional.
Any bonus under the plan is completely discretionary, with a maximum
annual bonus that may be well in excess of base salary. Payout
of a
portion of this bonus may be deferred for up to five years. While the
amount of any bonus is discretionary, the following factors are generally
used
in determining bonuses under the plan: |
○ |
Investment
Performance: The
investment performance of all accounts managed by the investment
professional over one, three and five-year periods
are considered. The pre-tax performance of each account is measured
relative to an appropriate peer group benchmark identified in the
table below (for example a Morningstar large cap growth peer group if the
fund invests primarily in large cap stocks with a growth strategy).
With
respect to fixed income accounts, relative yields are also used to measure
performance. This is the most heavily weighted
factor. |
○ |
Financial
Performance: The
profitability of the Subadvisor and its parent company are also considered
in determining bonus awards. |
○ |
Non-Investment
Performance: To a
lesser extent, intangible contributions, including the investment
professional’s support of client service and sales
activities, new fund/strategy idea generation, professional growth and
development, and management, where applicable, are also evaluated
when determining bonus awards. |
○ |
In
addition to the above, compensation may also include a revenue component
for an investment team derived from a number of factors including,
but not limited to, client assets under management, investment
performance, and firm metrics. |
• |
Manulife
equity awards. A limited number of senior investment professionals may
receive options to purchase shares of Manulife Financial stock.
Generally,
such option would permit the investment professional to purchase a set
amount of stock at the market price on the date of grant. The option
can be exercised for a set period (normally a number of years or until
termination of employment) and the investment professional would
exercise
the option if the market value of Manulife Financial stock increases. Some
investment professionals may receive restricted stock grants, where
the investment professional is entitled to receive the stock at no or
nominal cost, provided that the stock is forgone if the investment
professional’s
employment is terminated prior to a vesting
date. |
• |
Deferred
Incentives. Investment professionals may receive deferred incentives which
are fully invested in strategies managed by the team/individual
as
well as other Manulife Investment Management
strategies. |
The
Subadvisor also permits investment professionals to participate on a voluntary
basis in a deferred compensation plan, under which the investment professional
may elect on an annual basis to defer receipt of a portion of their compensation
until retirement. Participation in the plan is voluntary.
|
|
Fund |
Benchmark
Index for Incentive Period |
Fundamental
Equity Income Fund |
Russell
1000 Value Index |
WELLINGTON
MANAGEMENT COMPANY LLP
(“Wellington
Management”)
Diversified
Real Assets Fund
International
Growth Fund
Mid
Cap Growth Fund
U.S.
Growth Fund
PORTFOLIO
MANAGERS AND OTHER ACCOUNTS MANAGED
The
following table shows the portfolio managers at Wellington Management who are
primarily responsible for the day-to-day management of the stated
fund’s portfolio or the portion of the fund’s portfolio subadvised by Wellington
Management.
|
|
Fund |
Portfolio
Managers |
Diversified
Real Assets Fund |
G.
Thomas Levering |
Diversified
Real Assets Fund |
Bradford
D. Stoesser |
International
Growth Fund |
John
A. Boselli, CFA |
International
Growth Fund |
Alvaro
Llavero |
International
Growth Fund |
Zhaohuan
(Terry) Tian, CFA |
Mid
Cap Growth Fund |
Mario
E. Abularach, CFA, CMT |
Mid
Cap Growth Fund |
Stephen
Mortimer |
U.S.
Growth Fund |
John
A. Boselli, CFA |
U.S.
Growth Fund |
Timothy
N. Manning |
The
following table provides information regarding other accounts for which each
portfolio manager listed above has day-to-day management responsibilities.
Accounts are grouped into three categories: (i) other investment companies (and
series thereof); (ii) other pooled investment vehicles; and (iii)
other accounts. To the extent that any of these accounts pays advisory fees that
are based on account performance (“performance-based fees”),
information on those accounts is specifically broken out. In addition, any
assets denominated in foreign currencies have been converted into U.S.
dollars using the exchange rates as of the applicable date. Also shown below the
table is each portfolio manager’s investment in the fund he or
she
manages and
similarly managed accounts.
The
following table provides information as of March 31, 2022:
|
|
|
|
|
|
|
|
Other
Registered Investment Companies |
Other
Pooled Investment Vehicles |
Other
Accounts |
Portfolio
Manager |
Number
of Accounts |
Assets
(in millions) |
Number
of Accounts |
Assets
(in millions) |
Number
of Accounts |
Assets
(in millions) |
Mario
E. Abularach |
2 |
$7,074,407,188 |
0 |
$0 |
1 |
$13,658.622 |
John
A. Boselli |
1 |
$166,803,136 |
15 |
$15,401,473,379 |
34 |
$17,467,284,624 |
G.
Thomas Levering |
16 |
$7,400,634,484 |
46 |
$4,225,984,071 |
56 |
$1,916,414,148 |
Alvaro
Llavero |
0 |
$0 |
1 |
$589,283 |
0 |
$0 |
Timothy
N. Manning |
5 |
$1,936,292,688 |
7 |
$2,647,702,350 |
6 |
$2,511,209,169 |
Stephen
Mortimer |
12 |
$12,118,911,766 |
7 |
$440,316,908 |
4 |
$822,266,928 |
Bradford
D. Stoesser |
13 |
$2,266,029,023 |
44 |
$1,176,678,710 |
69 |
$1,725,115,798 |
Zhaohuan
(Terry) Tian |
0 |
$0 |
1 |
$640,734 |
0 |
$0 |
Performance-Based
Fees for Other Accounts Managed. Of the
accounts listed in the table above, those for which the subadvisor receives a
fee based on
investment performance are listed in the table below.
|
|
|
|
|
|
|
|
Other
Registered Investment Companies |
Other
Pooled Investment Vehicles |
Other
Accounts |
Portfolio
Manager |
Number
of Accounts |
Assets
(in millions) |
Number
of Accounts |
Assets
(in millions) |
Number
of Accounts |
Assets
(in millions) |
Mario
E. Abularach |
0 |
$0 |
0 |
$0 |
0 |
$0 |
John
A. Boselli |
0 |
$0 |
2 |
$964,614,906 |
0 |
$0 |
G.
Thomas Levering |
2 |
$585,117,114 |
18 |
$2,540,475,590 |
13 |
$473,023,661 |
Alvaro
Llavero |
0 |
$0 |
0 |
$0 |
0 |
$0 |
|
|
|
|
|
|
|
|
Other
Registered Investment Companies |
Other
Pooled Investment Vehicles |
Other
Accounts |
Portfolio
Manager |
Number
of Accounts |
Assets
(in millions) |
Number
of Accounts |
Assets
(in millions) |
Number
of Accounts |
Assets
(in millions) |
Timothy
N. Manning |
1 |
$1,415,832,739 |
1 |
$334,667 |
0 |
$0 |
Stephen
Mortimer |
0 |
$0 |
2 |
$139,819,155 |
1 |
$281,949,547 |
Bradford
D. Stoesser |
2 |
$55,309,310 |
6 |
$138,864,512 |
9 |
$496,058,858 |
Zhaohuan
(Terry) Tian |
0 |
$0 |
0 |
$0 |
0 |
$0 |
Ownership
of the Funds and Similarly Managed Accounts
The
following table shows the dollar range of Fund shares and shares of similarly
managed accounts beneficially owned by the portfolio managers listed
above as of March 31, 2022.
For
purposes of this table, “similarly managed accounts” include all accounts that
are managed (i) by the same portfolio
managers that are jointly and primarily responsible for the day-to-day
management of the Fund; and (ii) with an investment style, objective,
policies
and strategies substantially similar to those that are used to manage the
Fund.
|
|
Name |
Dollar
Range of Shares Owned |
International
Growth Fund1
|
|
John
A. Boselli |
Over
$1 million |
Alvaro
Llavero |
None |
Zhaohuan
(Terry) Tian |
None |
Mid
Cap Growth Fund |
|
Mario
E. Abularach |
None |
Stephen
Mortimer |
None |
U.S.
Growth Fund1
|
|
John
A. Boselli |
Over
$1 million |
Timothy
N. Manning |
None |
Diversified
Real Assets Fund2
|
|
G.
Thomas Levering |
Over
$1 million |
Bradford
D. Stoesser |
None |
1 |
As of
March 31, 2022, John
A. Boselli beneficially owned over $1 million of shares of the
Fund. |
2 |
As of
March 31, 2022, G.
Thomas Levering did not beneficially own shares of the
Fund. |
POTENTIAL
CONFLICTS OF INTEREST
Individual
investment professionals at Wellington Management manage multiple accounts for
multiple clients. These accounts may include mutual funds,
separate accounts (assets managed on behalf of institutions such as pension
funds, insurance companies, foundations, or separately managed account
programs sponsored by financial intermediaries), bank common trust accounts, and
hedge funds. Each fund’s managers listed in the prospectus
who are primarily responsible for the day-to-day management of the funds
(“Investment Professionals”) generally manage accounts in several
different investment styles. These accounts may have investment objectives,
strategies, time horizons, tax considerations and risk profiles that
differ from
those of the relevant fund. The Investment Professionals make investment
decisions for each account, including the relevant fund, based on the
investment objectives, policies, practices, benchmarks, cash flows, tax and
other relevant investment considerations applicable to that account.
Consequently,
the Investment Professionals may purchase or sell securities, including IPOs,
for one account and not another account, and the performance
of securities purchased for one account may vary from the performance of
securities purchased for other accounts. Alternatively, these accounts
may be managed in a similar fashion to the relevant fund and thus the accounts
may have similar, and in some cases nearly identical, objectives,
strategies and/or holdings to that of the relevant fund.
An
Investment Professional or other investment professionals at Wellington
Management may place transactions on behalf of other accounts that are
directly or
indirectly contrary to investment decisions made on behalf of the relevant fund,
or make investment decisions that are similar to those made for
the relevant fund, both of which have the potential to adversely impact the
relevant fund depending on market conditions. For example, an investment
professional may purchase a security in one account while appropriately selling
that same security in another account. Similarly, an Investment
Professional may purchase the same security for the relevant fund and one or
more other accounts at or about the same time. In those instances
the other accounts will have access to their respective holdings prior to the
public disclosure of the relevant fund’s holdings. In addition, some of
these accounts have fee structures, including performance fees, which are or
have the potential to be higher, in some cases significantly higher,
than the fees Wellington Management receives for managing the relevant fund.
Mssrs.
Boselli, Levering, Manning, Mortimer, and Stoesser also manage accounts
that pay performance allocations to Wellington Management or its
affiliates. Because
incentive payments paid by Wellington Management
to the Investment Professional are tied to revenues earned by Wellington
Management and, where noted, to the performance achieved by the manager
in each account, the incentives associated with any given account may be
significantly higher or lower than those associated with other
accounts
managed by a given Investment Professional. Therefore, portfolio managers and
other investment team members have an incentive to favor accounts
that have the potential to provide higher incentive compensation for them as
individuals. Wellington Management manages the conflict created by
these incentive arrangements through our policies on the allocation of
investment opportunities, including the allocation of equity IPOs, as
well as
after-the-fact monitoring and review of client accounts to assess dispersion
among accounts with similar mandates. Finally, the Investment Professionals
may hold shares or investments in the other pooled investment vehicles and/or
other accounts identified above.
Wellington
Management’s goal is to meet its fiduciary obligation to treat all clients
fairly and provide high quality investment services to all of its clients.
Wellington Management has adopted and implemented policies and procedures,
including brokerage and trade allocation policies and procedures,
which it believes address the conflicts associated with managing multiple
accounts for multiple clients. In addition, Wellington Management
monitors a variety of areas, including compliance with primary account
guidelines, the allocation of IPOs, and compliance with the firm’s Code of
Ethics, and places additional investment restrictions on investment
professionals who manage hedge funds and certain other accounts. Furthermore,
senior investment and business personnel at Wellington Management periodically
review the performance of Wellington Management’s investment
professionals. Although Wellington Management does not track the time an
investment professional spends on a single account, Wellington
Management does periodically assess whether an investment professional has
adequate time and resources to effectively manage the investment
professional’s various client mandates.
COMPENSATION
Wellington
Management receives a fee based on the assets under management of the funds as
set forth in an Investment Subadvisory Agreement between
Wellington Management and the Advisor with respect to each fund. Wellington
Management pays its investment professionals out of its total revenues,
including the advisory fees earned with respect to each fund. The following
information relates to the fiscal year ended March 31, 2022.
Wellington
Management’s compensation structure is designed to attract and retain
high-caliber investment professionals necessary to deliver high quality
investment management services to its clients. Wellington Management’s
compensation of each fund’s managers listed in the prospectus who are
primarily responsible for the day-to-day management of the funds (“Investment
Professionals”) includes a base salary and incentive components. The base
salary for each Investment Professional who is a partner (a “Partner”) of
Wellington Management Group LLP, the ultimate holding company of Wellington
Management, is generally a fixed amount that is determined by the managing
partners of Wellington Management Group LLP. The base
salary for
each other Investment Professional is determined by the Investment
Professionals’ experience and performance in their role as an Investment
Professional. Base salaries for Wellington Management’s employees are reviewed
annually and may be adjusted based on the recommendation
of an Investment Professional’s manager, using guidelines established by
Wellington Management’s Compensation Committee, which has
final oversight responsibility for base salaries of employees of the
firm. Each
Investment Professional is eligible to receive an incentive payment
based on the revenues earned by Wellington Management from the fund managed by
the Investment Professional and generally each other account
managed by such Investment Professional. Each Investment Professional’s
incentive payment relating to the relevant fund, is linked to the gross
pre-tax performance of the portion of the fund managed by the Investment
Professional compared to
the benchmark index and/or peer group identified
below, over one,
three, and five year periods, with an emphasis on five year results. Wellington
Management applies similar incentive compensation
structures (although the benchmarks or peer groups, time periods and rates may
differ) to other accounts managed by these Investment
Professionals, including accounts with performance fees.
Portfolio-based
incentives across all accounts managed by an investment professional can, and
typically do, represent a significant portion of an investment
professional’s overall compensation; incentive compensation varies significantly
by individual and can vary significantly from year to year. The
Investment Professionals may also be eligible for bonus payments based on their
overall contribution to Wellington Management’s business operations.
The revenues derived from clients served by the manager or team is another
factor; therefore, client or asset losses may have a negative impact on
remuneration. Senior management at Wellington Management may reward individuals
as it deems appropriate based on other factors. Each Partner is
eligible to participate in a Partner-funded tax qualified retirement plan, the
contributions to which are made pursuant to an actuarial formula.
Messrs.
Abularach,
Boselli, Levering, Manning, Mortimer, and Stoesser are
Partners.
|
|
Fund |
Benchmark
Index and/or Peer Group for Incentive Period |
Diversified
Real Assets Fund |
FTSE
EPRA Nareit Develop ex US (Stoesser) and DJ US Select RESI Index
(Stoesser) |
International
Growth Fund |
MSCI
All Country World ex USA Growth Index |
Mid
Cap Growth Fund |
Russell
Mid Cap Index |
U.S.
Growth Fund |
Russell
1000 Growth Index |
APPENDIX
C – PROXY VOTING POLICIES AND PROCEDURES
JOHN
HANCOCK FUNDS
PROXY
VOTING POLICIES AND PROCEDURES
(Updated
December 10, 2019)
Overview
Each fund
of the Trust or any other registered investment company (or series thereof)
(each, a “fund”) is required to disclose its proxy voting policies and
procedures in its registration statement and, pursuant to Rule 30b1-4 under the
1940 Act, file annually with the Securities and Exchange Commission
and make available to shareholders its actual proxy voting record.
Investment
Company Act
An
investment company is required to disclose in its SAI either (a) a summary of
the policies and procedures that it uses to determine how to vote proxies
relating to portfolio securities or (b) a copy of its proxy voting
policies.
A fund is
also required by Rule 30b1-4 of the Investment Company Act of 1940 to file Form
N-PX annually with the SEC, which contains a record of how the
fund voted proxies relating to portfolio securities. For each matter relating to
a portfolio security considered at any shareholder meeting, Form N-PX is
required to include, among other information, the name of the issuer of the
security, a brief identification of the matter voted on, whether and
how the
fund cast its vote, and whether such vote was for or against management. In
addition, a fund is required to disclose in its SAI and its annual and
semi-annual reports to shareholders that such voting record may be obtained by
shareholders, either by calling a toll-free number or through the fund’s
website, at the fund’s option.
Advisers
Act
Under
Advisers Act Rule 206(4)-6, investment advisers are required to adopt proxy
voting policies and procedures, and investment companies typically
rely on the policies of their advisers or sub-advisers.
Policy
The
Majority of the Independent Board of Trustees (the “Board”) of each registered
investment company of the Trusts, has adopted these proxy voting policies
and procedures (the “Trust Proxy Policy”).
It is the
Advisers’ policy to comply with Rule 206(4)-6 of the Advisers Act and Rule
30b1-4 of the 1940 Act as described above. In general, Advisers defer proxy
voting decisions to the sub-advisers managing the Funds. It is the policy of the
Trusts to delegate the responsibility for voting proxies relating to
portfolio securities held by a Fund to the Fund’s respective Adviser or, if the
Fund’s Adviser has delegated portfolio management responsibilities
to one or more investment sub-adviser(s), to the fund’s sub-adviser(s), subject
to the Board’s continued oversight. The sub-adviser for each Fund
shall vote all proxies relating to securities held by each Fund and in that
connection, and subject to any further policies and procedures contained
herein, shall use proxy voting policies and procedures adopted by each
sub-adviser in conformance with Rule 206(4)-6 under the Advisers Act.
If an
instance occurs where a conflict of interest arises between the shareholders and
the designated sub-adviser, however, Advisers retain the right to influence
and/or direct the conflicting proxy voting decisions in the best interest of
shareholders.
Delegation
of Proxy Voting Responsibilities
It is the
policy of the Trust to delegate the responsibility for voting proxies relating
to portfolio securities held by a fund to the fund’s investment adviser
(“adviser”)
or, if the fund’s adviser has delegated portfolio management responsibilities to
one or more investment sub-adviser(s), to the fund’s sub-adviser(s),
subject to the Board’s continued oversight. The sub-adviser for each fund shall
vote all proxies relating to securities held by each fund and in that
connection, and subject to any further policies and procedures contained herein,
shall use proxy voting policies and procedures adopted by each
sub-adviser in conformance with Rule 206(4)-6 under the Investment Advisers Act
of 1940, as amended (the “Advisers Act”).
Except as
noted below under Material Conflicts of Interest, the Trust Proxy Policy with
respect to a Fund shall incorporate that adopted by the Fund’s sub-adviser
with respect to voting proxies held by its clients (the “Sub-adviser Proxy
Policy”). Each Sub-adviser Policy, as it may be amended from time to time, is
hereby incorporated by reference into the Trust Proxy Policy. Each sub-adviser
to a Fund is directed to comply with these policies and procedures
in voting proxies relating to portfolio securities held by a fund, subject to
oversight by the Fund’s adviser and by the Board. Each Adviser to a Fund
retains the responsibility, and is directed, to oversee each sub-adviser’s
compliance with these policies and procedures, and to adopt and implement
such additional policies and procedures as it deems necessary or appropriate to
discharge its oversight responsibility. Additionally, the Trust’s
Chief Compliance Officer (“CCO”) shall conduct such monitoring and supervisory
activities as the CCO or the Board deems necessary or appropriate
in order to appropriately discharge the CCO’s role in overseeing the
sub-advisers’ compliance with these policies and procedures.
The
delegation by the Board of the authority to vote proxies relating to portfolio
securities of the funds is entirely voluntary and may be revoked by the
Board, in
whole or in part, at any time.
Voting
Proxies of Underlying Funds of a Fund of Funds
A.
Where the Fund of Funds is not the Sole
Shareholder of the Underlying Fund
With
respect to voting proxies relating to the shares of an underlying fund (an
“Underlying Fund”) held by a Fund of the Trust operating as a fund of
funds (a
“Fund of Funds”) in reliance on Section 12(d)(1)(G) of the 1940 Act where the
Underlying Fund has shareholders other than the Fund of Funds which are
not other Fund of Funds, the Fund of Funds will vote proxies relating to shares
of the Underlying Fund in the same proportion as the vote of all other
holders of such Underlying Fund shares.
B.
Where the Fund of Funds is the Sole
Shareholder of the Underlying Fund
In the
event that one or more Funds of Funds are the sole shareholders of an Underlying
Fund, the Adviser to the Fund of Funds or the Trusts will vote proxies
relating to the shares of the Underlying Fund as set forth below unless the
Board elects to have the Fund of Funds seek voting instructions from
the
shareholders of the Funds of Funds in which case the Fund of Funds will vote
proxies relating to shares of the Underlying Fund in the same proportion
as the instructions timely received from such shareholders.
1.
Where Both the Underlying Fund and the Fund
of Funds are Voting on Substantially Identical Proposals
In the
event that the Underlying Fund and the Fund of Funds are voting on substantially
identical proposals (the “Substantially Identical Proposal”), then the
Adviser or the Fund of Funds will vote proxies relating to shares of the
Underlying Fund in the same proportion as the vote of the shareholders
of the Fund
of Funds on the Substantially Identical Proposal.
2.
Where the Underlying Fund is Voting on a
Proposal that is Not Being Voted on by the Fund of
Funds
(a)
Where there is No Material Conflict of
Interest Between the Interests of the Shareholders of the Underlying Fund and
the Adviser Relating to the Proposal
In the
event that the Fund of Funds is voting on a proposal of the Underlying Fund and
the Fund of Funds is not also voting on a substantially identical proposal
and there is no material conflict of interest between the interests of the
shareholders of the Underlying Fund and the Adviser relating to the Proposal,
then the Adviser will vote proxies relating to the shares of the Underlying Fund
pursuant to its Proxy Voting Procedures.
(b)
Where there is a Material Conflict of
Interest Between the Interests of the Shareholders of the Underlying Fund and
the Adviser Relating to the Proposal
In the
event that the Fund of Funds is voting on a proposal of the Underlying Fund and
the Fund of Funds is not also voting on a substantially identical proposal
and there is a material conflict of interest between the interests of the
shareholders of the Underlying Fund and the Adviser relating to the Proposal,
then the Fund of Funds will seek voting instructions from the shareholders of
the Fund of Funds on the proposal and will vote proxies relating to shares
of the Underlying Fund in the same proportion as the instructions timely
received from such shareholders. A material conflict is generally defined as
a proposal involving a matter in which the Adviser or one of its affiliates has
a material economic interest.
Material
Conflicts of Interest
If (1) a
sub-adviser to a Fund becomes aware that a vote presents a material conflict
between the interests of (a) shareholders of the Fund; and (b) the Fund’s
Adviser, sub-adviser, principal underwriter, or any of their affiliated persons,
and (2) the sub-adviser does not propose to vote on the particular issue in
the manner prescribed by its Sub-adviser Proxy Policy or the material conflict
of interest procedures set forth in its Sub-adviser Proxy Policy are
otherwise triggered, then the sub-adviser will follow the material conflict of
interest procedures set forth in its Sub-adviser Proxy Policy when voting
such
proxies.
If a
Sub-adviser Proxy Policy provides that in the case of a material conflict of
interest between Fund shareholders and another party, the sub-adviser
will ask
the Board to provide voting instructions, the sub-adviser shall vote the
proxies, in its discretion, as recommended by an independent third party, in
the manner prescribed by its Sub-adviser Proxy Policy or abstain from voting the
proxies.
Proxy
Voting Committee(s)
The
Advisers will from time to time, and on such temporary or longer-term basis as
they deem appropriate, establish one or more Proxy Voting Committees.
A Proxy Voting Committee shall include the Advisers’ CCO and may include legal
counsel. The terms of reference and the procedures under which
a Proxy Voting Committee will operate will be reviewed from time to time by the
Legal and Compliance Department. Records of the deliberations
and proxy voting recommendations of a Proxy Voting Committee will be maintained
in accordance with applicable law, if any, and these Proxy
Procedures. Requested shareholder proposals or other Shareholder Advocacy in the
name of a Fund must be submitted for consideration pursuant to
the Shareholder Advocacy Policy and Procedures.
Securities
Lending Program
Certain of
the Funds participate in a securities lending program with the Trusts through an
agent lender. When a Fund’s securities are out on loan, they are
transferred into the borrower’s name and are voted by the borrower, in its
discretion. Where a sub-adviser determines, however, that a proxy vote
(or other
shareholder action) is materially important to the client’s account, the
sub-adviser should request that the agent recall the security prior to
the record
date to allow the sub-adviser to vote the securities.
Disclosure
of Proxy Voting Policies and Procedures in the Trust’s Statement of Additional
Information (“SAI”)
The Trust
shall include in its SAI a summary of the Trust Proxy Policy and of the
Sub-adviser Proxy Policy included therein. (In lieu of including a summary of
these policies and procedures, the Trust may include each full Trust Proxy
Policy and Sub-adviser Proxy Policy in the SAI.)
Disclosure
of Proxy Voting Policies and Procedures in Annual and Semi-Annual Shareholder
Reports
The Trusts
shall disclose in annual and semi-annual shareholder reports that a description
of the Trust Proxy Policy, including the Sub-adviser Proxy Policy, and
the Trusts’ proxy voting record for the most recent 12 months ended June 30 are
available on the Securities and Exchange Commission’s (“SEC”)
website, and without charge, upon request, by calling a specified toll-free
telephone number. The Trusts will send these documents within three business
days of receipt of a request, by first-class mail or other means designed to
ensure equally prompt delivery. The Fund Administration Department
is responsible for preparing appropriate disclosure regarding proxy voting for
inclusion in shareholder reports and distributing reports. The Legal
Department supporting the Trusts is responsible for reviewing such disclosure
once it is prepared by the Fund Administration Department.
Filing
of Proxy Voting Record on Form N-PX
The Trusts
will annually file their complete proxy voting record with the SEC on Form N-PX.
The Form N-PX shall be filed for the twelve months ended
June 30 no
later than August 31 of that year. The Fund Administration department, supported
by the Legal Department supporting the Trusts, is responsible
for the annual filing.
Regulatory
Requirement
Rule
206(4)-6 of the Advisers Act and Rule 30b1-4 of the 1940 Act
Reporting
Disclosures
in SAI: The Trusts
shall disclose in annual and semi-annual shareholder reports that a description
of the Trust Proxy Policy, including the Sub-adviser
Proxy Policy, and the Trusts’ proxy voting record for the most recent 12 months
ended June 30.
Form
N-PX: The proxy
voting service will file Form N-PX for each twelve-month period ending on June
30. The filing must be submitted to the SEC on or before
August 31 of each year.
Procedure
Review
of Sub-advisers’ Proxy Voting The Trusts
have delegated proxy voting authority with respect to Fund portfolio securities
in accordance with the Trust
Policy, as set forth above.
Consistent
with this delegation, each sub-adviser is responsible for the
following:
1.
Implementing written policies and procedures, in compliance with Rule 206(4)-6
under the Advisers Act, reasonably designed to ensure that the sub-adviser
votes portfolio securities in the best interest of shareholders of the
Trusts.
2.
Providing the Advisers with a copy and description of the Sub-adviser Proxy
Policy prior to being approved by the Board as a sub-adviser, accompanied
by a certification that represents that the Sub-adviser Proxy Policy has been
adopted in conformance with Rule 206(4)-6 under the Advisers
Act. Thereafter, providing the Advisers with notice of any amendment or revision
to that Sub-adviser Proxy Policy or with a description thereof. The
Advisers are required to report all material changes to a Sub-adviser Proxy
Policy quarterly to the Board. The CCO’s annual written compliance report to
the Board will contain a summary of the material changes to each Sub-adviser
Proxy Policy during the period covered by the report.
3.
Providing the Adviser with a quarterly certification indicating that the
sub-adviser did vote proxies of the funds and that the proxy votes were
executed in
a manner consistent with the Sub-adviser Proxy Policy. If the sub-adviser voted
any proxies in a manner inconsistent with the Sub-adviser Proxy
Policy, the sub-adviser will provide the Adviser with a report detailing the
exceptions.
Adviser
Responsibilities The Trusts
have retained a proxy voting service to coordinate, collect, and maintain all
proxy-related information, and to prepare and
file the Trust’s reports on Form N-PX with the SEC.
The
Advisers, in accordance with their general oversight responsibilities, will
periodically review the voting records maintained by the proxy voting
service in
accordance with the following procedures:
1. Receive
a file with the proxy voting information directly from each sub-adviser on a
quarterly basis.
2. Select a
sample of proxy votes from the files submitted by the sub-advisers and compare
them against the proxy voting service files for accuracy of the
votes.
3. Deliver
instructions to shareholders on how to access proxy voting information via the
Trust’s semi-annual and annual shareholder reports.
The Fund
Administration Department, in conjunction with the Legal Department supporting
the Trusts, is responsible for the foregoing procedures.
Proxy
Voting Service Responsibilities Proxy
voting services retained by the Trusts are required to undertake the following
procedures:
•
Aggregation
of Votes:
The proxy
voting service’s proxy disclosure system will collect fund-specific and/or
account-level voting records, including votes cast by multiple sub-advisers or
third-party voting services.
•
Reporting:
The proxy
voting service’s proxy disclosure system will provide the following reporting
features:
1. multiple
report export options;
2. report
customization by fund-account, portfolio manager, security, etc.;
and
3. account
details available for vote auditing.
•
Form
N-PX Preparation and Filing:
The
Advisers will be responsible for oversight and completion of the filing of the
Trusts’ reports on Form N-PX with the SEC. The proxy voting service will
prepare the
EDGAR version of Form N-PX and will submit it to the adviser for review and
approval prior to filing with the SEC. The proxy voting service will file
Form N-PX for each twelve-month period ending on June 30. The filing must be
submitted to the SEC on or before August 31 of each year. The Fund
Administration Department, in conjunction with the Legal Department supporting
the Trusts, is responsible for the foregoing procedures.
The Fund
Administration Department in conjunction with the CCO oversees compliance with
this policy.
The Fund
Administration Department maintains operating procedures affecting the
administration and disclosure of the Trusts’ proxy voting records.
The Trusts’
Chief Legal Counsel is responsible for including in the Trusts’ SAI information
regarding the Advisers’ and each sub-advisers proxy voting policies as
required by applicable rules and form requirements.
Key
Contacts
Investment
Compliance
Escalation/Reporting
Violations
All John
Hancock employees are required to report any known or suspected violation of
this policy to the CCO of the Funds.
Related
Policies and Procedures
7B
Registration Statements and Prospectuses
Document
Retention Requirements
The Fund
Administration Department and The CCO’s Office is responsible for maintaining
all documentation created in connection with this policy. Documents
will be maintained for the period set forth in the Records Retention Schedule.
See Compliance Policy: Books and Records.
JOHN
HANCOCK VARIABLE TRUST ADVISERS LLC
JOHN
HANCOCK INVESTMENT MANAGEMENT LLC
PROXY
VOTING POLICIES AND PROCEDURES
Updated
December 1, 2019
Overview
The SEC
adopted Rule 206(4)-6 under the Advisers Act, which requires investment advisers
with voting authority to adopt and implement written policies
and procedures that are reasonably designed to ensure that the investment
adviser votes client securities in the best interest of clients. The
procedures
must include how the investment adviser addresses material conflicts that may
arise between the interests of the investment adviser and those of
its clients. The Advisers are registered investment advisers under the Advisers
Act and serve as the investment advisers to the Funds. The Advisers
generally retain one or more sub-advisers to manage the assets of the Funds,
including voting proxies with respect to a Fund’s portfolio securities.
From time to time, however, the Advisers may elect to manage directly the assets
of a Fund, including voting proxies with respect to such Fund’s
portfolio securities, or a Fund’s Board may otherwise delegate to the Advisers
authority to vote such proxies. Rule 206(4)-6 under the Advisers Act
requires that a registered investment
adviser
adopt and implement written policies and procedures reasonably designed to
ensure that it votes proxies with respect to a client’s securities in
the best
interest of the client.
Firms are
required by Advisers Act Rule 204-2(c)(2) to maintain records of their voting
policies and procedures, a copy of each proxy statement that the
investment adviser receives regarding client securities, a record of each vote
cast by the investment adviser on behalf of a client, a copy of any document
created by the investment adviser that was material to making a decision how to
vote proxies on behalf of a client, and a copy of each written
client request for information on how the adviser voted proxies on behalf of the
client, as well as a copy of any written response by the investment
adviser to any written or oral client request for information on how the adviser
voted that client’s proxies.
Investment
companies must disclose information about the policies and procedures used to
vote proxies on the investment company’s portfolio securities
and must file the fund’s proxy voting record with the SEC annually on Form
N-PX.
Pursuant
thereto, the Advisers have adopted and implemented these proxy voting policies
and procedures (the “Proxy Procedures”).
Policy
It is the
Advisers’ policy to comply with Rule 206(4)-6 and Rule 204-2(c)(2) under the
Advisers Act as described above. In general, the Advisers delegate
proxy voting decisions to the sub-advisers managing the funds. If an instance
occurs where a conflict of interest arises between the shareholders
and a particular sub-adviser, however, the Adviser retains the right to
influence and/or direct the conflicting proxy voting decisions.
Regulatory
Requirement
Rule
206(4)-6 under the Advisers Act
Reporting
Form-N-PX
Advisers
will provide the Board with notice and a copy of any amendments or revisions to
the Procedures and will report quarterly to the Board all material
changes to these Proxy Procedures.
The CCO’s
annual written compliance report to the Board will contain a summary of material
changes to the Proxy Procedures during the period covered by
the report.
If the
Advisers or the Designated Person vote any proxies in a manner inconsistent with
either these Proxy Procedures or a Fund’s proxy voting policies and
procedures, the CCO will provide the Board with a report detailing such
exceptions.
Procedure
Fiduciary
Duty
The
Advisers have a fiduciary duty to vote proxies on behalf of a Fund in the best
interest of the Fund and its shareholders.
Voting
of Proxies - Advisers
The
Advisers will vote proxies with respect to a Fund’s portfolio securities when
authorized to do so by the Fund and subject to the Fund’s proxy voting
policies
and procedures and any further direction or delegation of authority by the
Fund’s Board. The decision on how to vote a proxy will be made by the
person(s) to whom the Advisers have from time to time delegated such
responsibility (the “Designated Person”). The Designated Person may include the
Fund’s portfolio manager(s) or a Proxy Voting Committee, as described
below.
When voting
proxies with respect to a Fund’s portfolio securities, the following standards
will apply:
• The
Designated Person will vote based on what it believes is in the best interest of
the Fund and its shareholders and in accordance with the Fund’s investment
guidelines.
• Each
voting decision will be made independently. To assist with the analysis of
voting issues and/or to carry out the actual voting process the Designated
Person may enlist the services of (1) reputable professionals (who may include
persons employed by or otherwise associated with the
Advisers or
any of its affiliated persons) or (2) independent proxy evaluation services such
as Institutional Shareholder Services. However, the ultimate decision as
to how to vote a proxy will remain the responsibility of the Designated
Person.
• The
Advisers believe that a good management team of a company will generally act in
the best interests of the company. Therefore, the Designated Person will
take into consideration as a key factor in voting proxies with respect to
securities of a company that are held by the Fund the quality of the
company’s
management. In general, the Designated Person will vote as recommended by
company management except in situations where the Designated
Person believes such recommended vote is not in the best interests of the Fund
and its shareholders.
• As a
general principle, voting with respect to the same portfolio securities held by
more than one Fund should be consistent among those Funds having
substantially the same investment mandates.
• The
Advisers will provide the Fund, from time to time in accordance with the Fund’s
proxy voting policies and procedures and any applicable laws and regulations,
a record of the Advisers’ voting of proxies with respect to the Fund’s portfolio
securities.
Material
Conflicts of Interest
In carrying
out its proxy voting responsibilities, the Advisers will monitor and resolve
potential material conflicts (“Material Conflicts”) between the interests
of (a) a Fund and (b) the Advisers or any of its affiliated persons. Affiliates
of the Advisers include Manulife Financial Corporation and its subsidiaries.
Material Conflicts may arise, for example, if a proxy vote relates to matters
involving any of these companies or other issuers in which the Advisers or
any of their affiliates has a substantial equity or other interest.
If the
Advisers or a Designated Person become aware that a proxy voting issue may
present a potential Material Conflict, the issue will be referred to
the
Advisers’ Legal Department and/or the Office of the CCO. If the Legal Department
and/or the Office of the CCO, as applicable determines that a potential
Material Conflict does exist, a Proxy Voting Committee will be appointed to
consider and resolve the issue. The Proxy Voting Committee may make any
determination that it considers reasonable and may, if it chooses, request the
advice of an independent, third-party proxy service on how to vote the
proxy.
Voting
Proxies of Underlying Funds of a Fund of Funds
The
Advisers or the Designated Person will vote proxies with respect to the shares
of a Fund that are held by another Fund that operates as a Fund of Funds in
the manner provided in the proxy voting policies and procedures of the Fund of
Funds (including such policies and procedures relating to material
conflicts of interest) or as otherwise directed by the board of trustees or
directors of the Fund of Funds.
Proxy
Voting Committee(s)
The
Advisers will from time to time, and on such temporary or longer-term basis as
they deem appropriate, establish one or more Proxy Voting Committees.
A Proxy Voting Committee shall include the Advisers’ CCO and may include legal
counsel. The terms of reference and the procedures under which
a Proxy Voting Committee will operate will be reviewed from time to time by the
Legal and Compliance Department. Records of the deliberations
and proxy voting recommendations of a Proxy Voting Committee will be maintained
in accordance with applicable law, if any, and these Proxy
Procedures. Requested shareholder proposals or other Shareholder Advocacy must
be submitted
for
consideration pursuant to the Shareholder Advocacy Policy and
Procedures.
Voting
of Proxies - SubAdvisers In the
case of proxies voted by a sub-adviser to a Fund pursuant to the Fund’s proxy
voting procedures, the Advisers will
request the sub-adviser to certify to the Advisers that the sub-adviser has
voted the Fund’s proxies as required by the Fund’s proxy voting policies
and
procedures and that such proxy votes were executed in a manner consistent with
these Proxy Procedures and to provide the
Advisers
with a report detailing any instances where the sub-adviser voted any proxies in
a manner inconsistent with the Fund’s proxy voting policies and
procedures. The COO of the Advisers will then report to the Board on a quarterly
basis regarding the sub-adviser certification and report to the Board any
instance where the sub-adviser voted any proxies in a manner inconsistent with
the Fund’s proxy voting policies and procedures.
The Fund
Administration Department maintains procedures affecting all administration
functions for the mutual funds. These procedures detail the disclosure
and administration of the Trust’s proxy voting records.
The Trust’s
Chief Legal Counsel is responsible for including, in the SAI of each Trust,
information about the proxy voting of the Advisers and each sub-adviser.
Reporting
to Fund Boards
The CCO of
the Advisers will provide the Board with a copy of these Proxy Procedures,
accompanied by a certification that represents that the Proxy Procedures
have been adopted by the Advisers in conformance with Rule 206(4)-6 under the
Advisers Act. Thereafter, the Advisers will provide the Board with
notice and a copy of any amendments or revisions to the Procedures and will
report quarterly to the Board all material changes to these Proxy
Procedures.
The CCO’s
annual written compliance report to the Board will contain a summary of material
changes to the Proxy Procedures during the period covered by
the report.
If the
Advisers or the Designated Person vote any proxies in a manner inconsistent with
either these Proxy Procedures or a Fund’s proxy voting policies and
procedures, the CCO will provide the Board with a report detailing such
exceptions.
Key
Contacts
Investment
Compliance
Escalation/Reporting
Violations
All John
Hancock employees are required to report any known or suspected violation of
this policy to the CCO of the Funds.
Related
Policies and Procedures
N/A
Document
Retention Requirements
The
Advisers will retain (or arrange for the retention by a third party of) such
records relating to proxy voting pursuant to these Proxy Procedures as
may be
required from time to time by applicable law and regulations, including the
following:
1. These
Proxy Procedures and all amendments hereto;
2. All
proxy statements received regarding Fund portfolio securities;
3. Records
of all votes cast on behalf of a Fund;
4. Records
of all Fund requests for proxy voting information;
5. Any
documents prepared by the Designated Person or a Proxy Voting Committee that
were material to or memorialized the basis for a voting decision;
6. All
records relating to communications with the Funds regarding Conflicts;
and
7. All
minutes of meetings of Proxy Voting Committees.
The Office
of the CCO, and/or the Legal Department are responsible for maintaining the
documents set forth above as needed and deemed appropriate.
Such documents will be maintained in the Office of the CCO, and/or the Legal
Department for the period set forth in the Records Retention
Schedule.
BOSTON
PARTNERS
GLOBAL INVESTORS, INC.
PROXY
VOTING POLICIES AND PROCEDURES
MARCH
2022
PROXY
VOTING POLICY AND PROCEDURES SUMMARY
Boston
Partners Global Investors, Inc. (“Boston Partners”) is an investment
adviser comprised
of two divisions, Boston Partners and Weiss, Peck & Greer
Partners (“WPG”). Boston Partners’ Governance Committee (the “Committee”) is
comprised of representatives from portfolio management, securities
analyst, portfolio research, quantitative research, investor relations,
sustainability and engagement, and legal/compliance teams. The Committee
is responsible for administering and overseeing Boston Partners’ proxy voting
process. The Committee makes decisions on proxy policy, establishes
formal Boston Partners’ Proxy Voting Policies (the “Proxy Voting Policies”) and
updates the Proxy Voting Policies as necessary, but no less frequently
than annually. In addition, the Committee, in its sole discretion, delegates
certain functions to internal departments and/or engages third-party
vendors to assist in the proxy voting process. Finally, members of the Committee
are responsible for evaluating and resolving conflicts of interest relating to
Boston Partners’ proxy voting process.
To assist
Boston Partners in carrying out our responsibilities with respect to proxy
activities, Boston Partners has engaged Institutional Shareholder Services
Inc. (“ISS”), a third-party corporate governance research service, which is
registered as an investment adviser. ISS receives all proxy-related materials
for securities held in client accounts and votes the proposals in accordance
with Boston Partners’ Proxy Voting Policies. ISS assists Boston Partners
with voting execution through an electronic vote management system that allows
ISS to pre-populate and automatically submit votes in accordance
with Boston Partners’ Proxy Voting Policies. While Boston Partners may consider
ISS’s recommendations on proxy issues, Boston Partners bears
ultimate responsibility for proxy voting decisions and can change votes via ISS’
electronic voting platform at any time before a meeting’s cut-off date. ISS
also provides recordkeeping and vote-reporting services.
How Boston Partners
Votes
For those
clients who delegate proxy voting authority to Boston Partners, Boston Partners
has full discretion over votes cast on behalf of clients. All proxy votes
on behalf of clients are voted the same way; however, Boston Partners may
refrain from voting proxies for certain clients in certain markets.
These arrangements are outlined in respective client investment management
agreements. Boston Partners may also refrain from voting proxies on
behalf of clients when shares are out on loan; when share blocking is required
to vote; where it is not possible to vote shares; where there are legal
or operational difficulties; where Boston Partners believes the administrative
burden and/ or associated cost exceeds the expected benefit to a client;
or where not voting or abstaining produces the desired outcome.
Boston
Partners meets with ISS at least annually to review ISS policy changes, themes,
methodology, and to review the Proxy Voting Policies. The information
is taken to the Committee to discuss and decide what changes, if any, need to be
made to the Proxy Voting Policies for the upcoming year.
The Proxy
Voting Policies provide standard positions on likely issues for the upcoming
proxy season. In determining how proxies should be voted, including
those proxies the Proxy Voting Policies do not address or where the Proxy Voting
Policies’ application is ambiguous, Boston Partners primarily
focuses on maximizing the economic value of its clients’ investments. This is
accomplished through engagements with Boston Partners’ analysts
and issuers, as well as independent research conducted by Boston Partners’
Sustainability and Engagement Team. In the case of social and political
responsibility issues that, in its view, do not primarily involve financial
considerations, it is Boston Partners’ objective to support shareholder
proposals
that it believes promote good corporate citizenship. If Boston Partners believes
that any research provided by ISS or other sources is incorrect,
that research is ignored in the proxy voting decision, which is escalated to the
Committee so that all relevant facts can be discussed, and a final vote
determination can be made. Boston Partners is alerted to proposals that may
require more detailed analysis via daily system generated refer notification
emails. These emails prompt the Committee Secretary to call a Committee meeting
to discuss the items in question.
Although
Boston Partners has instructed ISS to vote in accordance with the Proxy Voting
Policies, Boston Partners retains the right to deviate from the
Proxy
Voting Policies if, in its estimation, doing so would be in the best interest of
clients.
Conflicts
Boston
Partners believes clients are sufficiently insulated from any actual or
perceived conflicts Boston Partners may encounter between its interests
and those
of its clients because Boston Partners votes proxies based on the predetermined
Proxy Voting Policies. However, as noted, Boston Partners may deviate
from the Proxy Voting Policies in certain circumstances,
or the Proxy
Voting Policies may not address certain proxy voting proposals. If a
member of
Boston Partners’ research or portfolio management team recommends that
Boston
Partners vote a
particular proxy proposal in a manner inconsistent
with the Proxy Voting Policies or if the Proxy Voting
Policies do
not address a particular proposal, Boston Partners will adhere to certain
procedures designed to ensure that the decision to vote the particular
proxy proposal is based on the best interest of Boston Partners’ clients.
These
procedures
require the individual requesting a deviation from the Proxy
Voting Policies to complete a Conflicts Questionnaire (the “Questionnaire”)
along with written documentation of the
economic rationale supporting
the request. The Questionnaire seeks to identify possible relationships with the
parties involved in the proxy that may not be apparent.
Based on
the responses to the Questionnaire, the Committee (or a subset of the Committee)
will determine whether it believes a material conflict of interest is
present. If a material conflict of interest is found to exist, Boston Partners
will vote in accordance with client instructions, seek the recommendation
of an independent third-party or resolve the conflict in such other manner as
Boston Partners believes is appropriate, including by making its
own determination that a particular vote is, notwithstanding the conflict, in
the best interest of clients.
Oversight
Meetings
and upcoming votes are reviewed by the Committee Secretary
with a focus on votes against management. Votes on
behalf of Boston Partners’
clients are reviewed and compared against ISS’ recommendations. When auditing
vote instructions, which Boston Partners does at least annually,
ballots voted for a specified period are requested from ISS, and a sample of
those meetings are reviewed by Boston Partners’ Operations Team. The
information is then forwarded to compliance/ the Committee Secretary for review.
Any perceived exceptions are reviewed with ISS and an analysis of
what the potential vote impact would have been is conducted. ISS’ most recent
SOC-1 indicates they have their own control and audit personnel
and procedures, and a sample of ballots are randomly selected on a quarterly
basis. ISS compares ballots to applicable vote instructions recorded in
their database. Due diligence meetings with ISS are conducted
periodically.
Disclosures
A copy of
Boston Partners’ Proxy Voting Policies and Procedures, as updated from time to
time, as well as information regarding the voting of securities
for a client account are available
upon request from your Boston Partners relationship manager. A copy of Boston
Partners’ Proxy Voting Policies
and Procedures are also available at https://www.boston-partners.com/. For
general inquires, contact
(617) 832-8153.
EPOCH
INVESTMENT PARTNERS, INC.
PROXY
VOTING AND CLASS ACTION MONITORING
Policy
Epoch
maintains proxy voting authority for Client accounts, unless otherwise
instructed by the client. Epoch votes proxies in a manner that it believes
is most
likely to enhance the economic value of the underlying securities held in Client
accounts. Epoch maintains a
Proxy Voting Group comprised of investment
team, operations and compliance representatives that meet at least on a
quarterly basis. Epoch will not
respond to proxy solicitor requests unless
Epoch determines that it is in the best interest of Clients to do
so.
In light of
Epoch’s fiduciary duty to its Clients, and given the complexity of the issues
that may be raised in connection with proxy votes, the Firm has retained
Institutional Shareholder Services (“ISS”). ISS is an independent adviser that
specializes in providing a variety of fiduciary-level proxy-related services to
institutional investment managers. The services provided to the Firm include
in-depth research, voting recommendations, vote execution and
recordkeeping. Epoch
requires ISS to notify the Company if ISS experiences a material conflict of
interest in the voting of Clients’ proxies.
ISS will
pre-populate the Firm’s votes on the ISS’s electronic voting platform with ISS’s
recommendations based on the Firm’s voting instructions to ISS. To the
extent Epoch becomes aware that an issuer that is the subject of ISS’s voting
recommendation intends to file or has filed additional solicitating materials
(“Additional Information”) after the Firm has received the ISS’s voting
recommendation, but before the proxy submission deadline, and the Additional
Information would reasonably be expected to affect the Adviser’s voting
determination, Epoch will consider the Additional Information prior to
exercising voting authority to confirm that the Firm is voting in its client’s
best interest.
Notwithstanding
the foregoing, the Firm will use its best judgment to vote proxies in the manner
it deems to be in the best interests of its Clients. In the event that
judgment differs from that of ISS, or that investment teams within Epoch wish to
vote differently with respect to the same proxy in light of their
specific strategy, the Firm will memorialize the reasons supporting that
judgment and retain a copy of those records for the Firm’s files. The
Compliance
Department will
periodically review the voting of proxies to ensure that votes which
have diverged from the
judgment of ISS, were voted consistent
with the Firm’s fiduciary duties.
On at least
an annual basis, the CCO or a designee will review this Proxy Voting and Class
Action Monitoring policy.
Procedures
for Lent Securities and Issuers in Share-blocking Countries
At times,
neither Epoch nor ISS will be allowed to vote proxies on behalf of Clients when
those Clients have adopted a securities lending program. The Firm
recognizes that Clients who have adopted securities lending programs have made a
general determination that the lending program provides a greater
economic benefit than retaining the ability to vote proxies. Notwithstanding
this fact, in the event that the Firm becomes aware of a proxy voting
matter that would enhance the economic value of the client’s position and that
position is lent out, the Firm will make reasonable efforts to inform the
Client that neither the Firm nor ISS is able to vote the proxy until the Client
recalls the lent security.
In certain
markets where share blocking occurs, shares must be “frozen” for trading
purposes at the custodian or sub-custodian in order to vote. During the
time that shares are blocked, any pending trades will not settle. Depending on
the market, this period can last from one day to three weeks. Any sales
that must be executed will settle late and potentially be subject to interest
charges or other punitive fees. For this reason, in blocking markets,
the Firm retains the right to vote or not, based on the determination of the
Firm’s Investment Personnel. If the decision is made to vote, the Firm will
process votes through ISS unless other action is required as detailed in this
policy.
Procedures
for Conflicts of Interest
Epoch has
identified the following potential conflicts of interest:
• Whether
there are any business or personal relationships between Epoch, or an employee
of Epoch, and the officers, directors or shareholder proposal
proponents of a company whose securities are held in Client accounts that may
create an incentive to vote in a manner that is not consistent with the
best interests of Epoch’s Clients;
• Whether
Epoch has any other economic incentive to vote in a manner that is not
consistent with the best interests of its Clients; or
• Whether a
proxy relates to a company that is a Client of Epoch.
If a
conflict of interest has been identified (as
outlined above), then Epoch
shall bring the proxy voting issue first
to the
attention of the Proxy
Voting Group. The
Proxy Voting Group may engage affected Clients and/or Epoch employees to ensure
the relevant proxies are voted in a manner that is consistent
with Epoch’s fiduciary duties.
Procedures
for Proxy Solicitation
In the
event that any officer or employee of Epoch receives a request to reveal or
disclose Epoch’s voting intention on a specific proxy event, then the
officer or
employee must forward the solicitation to the CCO.
Procedures
for Voting Disclosure
Upon
request, Epoch will provide Clients with their specific proxy voting
history.
Initial
and Ongoing Diligence of Proxy Service Provider
The
Operations Department
will conduct additional diligence on ISS to ensure the provider continues to
have the capacity and competency to adequately
analyze proxy issues on an annual basis. As part of the due diligence process
the Head of
Operations, or a
designee, obtains a completed questionnaire
from ISS that assists Epoch in evaluating ISS’s services and any potential
conflicts of interest that may exist.
Recordkeeping
Epoch must
maintain the documentation described in the following section for a period of
not less than five (5) years, the first two (2) years at its principal
place of business. The Firm will be responsible for the following procedures and
for ensuring that the required documentation is retained.
Client
Request to Review Proxy Votes
If a Client
requests to review the proxy votes, the Relationship Management team
will:
• Record
the identity of the Client, the date of the request, and the disposition (e.g.,
provided a written or oral response to Client’s request, referred to
third
party, not a proxy voting Client, other dispositions, etc.) in a suitable
place.
• Furnish
the information requested, free of charge, to the Client within a reasonable
time period (within 10 business days). Maintain a copy of the written
record provided in response to client’s written (including e-mail) or oral
request.
Proxy
Voting Records
The proxy
voting record is periodically provided to Epoch by ISS. Included in these
records are:
• Documents
prepared or created by Epoch that were material to making a decision on how to
vote, or that memorialized the basis for the decision.
•
Documentation or notes or any communications received from third parties, other
industry analysts, third party service providers, company’s management
discussions, etc. that were material in the basis for the decision.
Disclosure
Epoch
includes a description of its policies and procedures regarding proxy voting and
class actions in Part 2 of Form ADV, along with a statement that Clients and
Investors contact Epoch at 212 303-7200 to obtain a copy of these policies and
procedures and information about how Epoch voted with respect to
the Client’s securities. Any request for information about proxy voting or class
actions should be promptly forwarded to Epoch at the number above and
we will respond to any such requests.
The CCO
will ensure that Part 2A of Form ADV is updated as necessary to reflect: (i) all
material changes to this policy; and (ii) regulatory requirements related to
proxy voting disclosure.
As a matter
of policy, Epoch does not disclose how it expects to vote on upcoming proxies.
Additionally, Epoch does not disclose the way it voted proxies to
unaffiliated third parties without a legitimate need to know such
information.
Class
Action Litigation Settlement
Generally,
Epoch does not have responsibility to file proofs of claim or engage in class
action litigation.
Epoch does
not complete proofs-of-claim on behalf of Clients for current or historical
holdings; however, Epoch will assist Clients with collecting information
relevant to filing proofs-of-claim when such information is in the possession of
Epoch.
MANULIFE
INVESTMENT MANAGEMENT
GLOBAL
PROXY VOTING POLICY
AND
PROCEDURES
April
2021
Executive
summary
Each
investment team at Manulife Investment Management (Manulife
IM)1 is
responsible for investing in line with its investment philosophy and clients’
objectives.
Manulife IM’s approach to proxy voting aligns with its organizational structure
and encourages best practices in governance and management
of environmental and social risks and opportunities. Manulife IM has adopted and
implemented proxy voting policies and procedures to ensure that
proxies are voted in the best interests of its clients for whom it has proxy
voting authority.
This
global
proxy voting policy and procedures (policy) applies to
each of the Manulife IM advisory affiliates listed in Appendix A. In seeking to
adhere to local
regulatory requirements of the jurisdiction in which an advisory affiliate
operates, additional procedures specific to that affiliate may be implemented
to ensure compliance, where applicable. The policy is not
intended to cover every possible situation that may arise in the course of
business,
but rather to act as a decision-making guide. It is therefore subject to change
and interpretation from time to
time as facts
and circumstances
dictate.
Statement
of policy
• |
The
right to vote is a basic component of share ownership and is an important
control mechanism to ensure that a company is managed in the best
interests
of its shareholders. Where clients delegate proxy voting authority to
Manulife IM, Manulife IM has a fiduciary duty to exercise voting rights
responsibly. |
• |
Where
Manulife IM is granted and accepts responsibility for voting proxies for
client accounts, it will seek to ensure proxies are received and voted in
the
best interests of the client with a view to maximize the economic value of
their equity securities, unless it determines that it is in the best
interests
of the client to refrain from voting a given
proxy. |
• |
If
there is any potential material proxy-related conflict of interest between
Manulife IM and its clients, identification and resolution processes are
in place
to provide for determination in the best interests of the
client. |
• |
Manulife
IM will disclose information about its proxy voting policies and
procedures to its clients. |
• |
Manulife
IM will maintain certain records relating to proxy
voting. |
Philosophy
on sustainable
investing
Manulife
IM’s commitment to sustainable investment2 is focused
on protecting and enhancing the value of our clients’ investments and, as active
owners in
the companies in which we invest, we believe that voting at shareholder meetings
can contribute to the long-term sustainability of our investee
companies. Manulife IM will seek to exercise the rights and responsibilities
associated with equity ownership, on behalf of its clients, with a focus on
maximizing long-term shareholder returns, as well as enhancing and improving the
operating strength of the companies to create sustainable value for
shareholders.
Manulife IM
invests in a wide range of securities across the globe, ranging from large
multinationals to smaller early stage companies, and from well-developed
markets to emerging and frontier markets. Expectations of those companies vary
by market to reflect local standards, regulations and laws. Manulife IM
believes, however, that successful companies across regions are generally better
positioned over the long-term if they have:
• |
Robust
oversight,
including a strong and effective board with independent and objective
leaders working on behalf of
shareholders; |
• |
Mechanisms
to mitigate risk such as effective internal controls, board expertise
covering a firm’s unique risk profile, and routine use of key
performance
indicators to
measure and assess long-term risks; |
• |
A
management team aligned with shareholders through remuneration structures
that incentivize long-term performance through the judicious and
sustainable
stewardship of company resources; |
• |
Transparent
and thorough reporting of the components of the business that are most
significant to shareholders and stakeholders with focus on the
firm’s
long-term success;
and |
• |
Management
focused on all forms of capital including environmental, social, and
human capital. |
The
Manulife Investment Management voting
principles (voting principles) outlined
in Appendix B provide guidance for our voting decisions. An active decision to
invest in a firm reflects a positive conviction in the investee company and we
generally expect to be supportive of management for that reason.
Manulife IM may seek to challenge management’s recommendations, however, if they
contravene these voting
principles or
Manulife IM otherwise
determines that doing so is in the best interest of its clients.
Manulife IM
also regularly engages with boards and management on environmental, social or
corporate governance issues consistent with the principles
stipulated in our sustainable
investing statement and our
ESG engagement
policy. Manulife
IM may, through these engagements, request certain
changes of the portfolio company to mitigate risks or maximize opportunities. In
the context of preparing for a shareholder meeting, Manulife IM will
review progress on requested changes for those companies engaged. In an instance
where Manulife IM determines that the issuer has not made sufficient
improvements on an issue, then we may take voting action to demonstrate our
concerns.
In rare
circumstances, Manulife
IM may consider filing, or co-filing, a shareholder resolution at an investee
company. This may occur where our team has engaged
with management regarding a material sustainability risk or opportunity, and
where we determine that the company has not made
satisfactory
progress on the matter within a reasonable time period. Any such decision will
be in the sole discretion of Manulife IM and acted on where we believe
filing, or co-filing, a proposal is in the best interests of our
clients.
Manulife IM
may also divest of holdings in a company where portfolio
managers are
dissatisfied with company financial performance, strategic direction, and/or
management of material sustainability risks or opportunities.
Procedures
Receipt
of ballots
and proxy materials
Proxies
received are reconciled against the client’s holdings, and the custodian bank
will be notified if proxies have not been forwarded to the proxy service
provider when due.
Voting
proxies
Manulife IM
has adopted the voting
principles contained
in Appendix B of this policy.
Manulife IM
has deployed the services of a proxy voting services provider to ensure the
timely casting of votes, and to provide relevant and timely proxy voting
research to inform our voting decisions. Through
this process, the proxy voting services provider populates initial recommended
voting decisions
that are aligned with the Manulife IM voting principles outlined in Appendix B.
These voting recommendations are then submitted, processed,
and ultimately tabulated. Manulife IM retains the authority and operational
functionality to submit different voting instructions after these initial
recommendations from the proxy voting services provider have been submitted,
based on Manulife IM’s assessment of each situation. As Manulife IM
reviews voting recommendations and decisions, as articulated below, Manulife IM
will often change voting instructions based on those reviews.
Manulife IM periodically
reviews the detailed policies created by the proxy voting service provider to
ensure consistency with our voting
principles, to the
extent this is possible.
Manulife IM
also has procedures in place to review additional materials submitted by issuers
often in response to voting recommendations made by proxy
voting service providers. Manulife IM will review additional materials related
to proxy voting decisions in those situations where Manulife IM becomes
aware of those additional materials, is considering voting contrary to
management, and where Manulife IM owns 2% or more of the subject global
proxy issuer as aggregated across the funds.
Portfolio
managers actively review voting options and make voting decisions for their
holdings. Where Manulife IM holds a significant ownership position in
an issuer, the rationale for a portfolio manager’s voting decision is
specifically recorded, including whether the vote cast aligns with the
recommendations
of the proxy voting services provider or has been voted differently. A
significant ownership position in an investment is defined as those cases
where Manulife IM holds at least 2% of a company’s issued share capital in
aggregate across all Manulife IM client accounts.
The
Manulife IM ESG research
and integration team (ESG team) is an
important resource for portfolio management teams on proxy matters. This team
provides
advice on specific proxy votes for individual issuers if needed. ESG
team advice is
supplemental to the research and recommendations provided by
our proxy voting services provider. In particular, ESG analysts actively review
voting resolutions for companies in which:
• |
Manulife
IM’s aggregated holdings across all client accounts represent 2% or
greater of issued capital; |
• |
A
meeting agenda includes shareholder resolutions related to environmental
and social risk management issues, or where the subject of a shareholder
resolution is deemed to be material to our investment decision;
or |
• |
Manulife
IM may also review voting resolutions for issuers where an investment team
engaged with the firm within the previous two years to seek a
change
in behavior. |
After
review, the ESG team may
provide research and advice to investment staff in line with the voting
principles.
Manulife IM
also has an internal proxy
voting working group (working group) comprising
senior managers from across Manulife IM including the equity investment
team, legal,
compliance, and the
ESG team. The
working group operates
under the auspices of the Manulife IM Public Markets Sustainable Investing
Committee. The working
group regularly
meets to review and discuss voting decisions on shareholder proposals or
instances where a portfolio
manager recommends a vote different than the recommendation of the proxy voting
services provider.
Manulife IM
clients retain the authority, and may choose, to lend shareholdings. Manulife
IM, however, generally retains the ability to restrict
shares from being
lent and to recall shares on loan in order to
preserve
proxy voting rights. Manulife IM is focused in particular on preserving voting
rights for issuers
where funds hold 2% or more of an issuer as aggregated across funds. Manulife IM
has a process in place to systematically restrict and recall shares on a
best efforts basis for those issuers where we own an aggregate of 2% or
more.
Manulife IM
may refrain from voting a proxy where we have agreed with a client in advance to
limit the situations in which we will execute votes. Manulife
IM
may also
refrain from voting due to logistical considerations that may have a detrimental
effect on our ability to vote. These issues may include,
but are not limited to:
• |
Costs
associated with voting the proxy exceed the expected benefits to
clients; |
• |
Underlying
securities have been lent out pursuant to a client’s securities lending
program and have not been subject to
recall; |
• |
Short
notice of a shareholder meeting; |
• |
Requirements
to vote proxies in person; |
• |
Restrictions
on a nonnational’s
ability to exercise votes, determined by local market
regulation; |
• |
Restrictions
on the sale of securities in proximity to the shareholder meeting (i.e.
share
blocking); |
• |
Requirements
to disclose commercially sensitive information that may be made public
(i.e. reregistration); |
• |
Requirements
to provide local agents with power of attorney to facilitate the voting
instructions (such proxies are voted on a best-efforts basis);
or |
• |
The
inability of a
client’s custodian to forward and process proxies
electronically. |
If a
Manulife IM portfolio manager believes it is in the best interest of a client to
vote proxies in a manner inconsistent with the policy, the
portfolio manager
will submit new voting instructions to a member of the ESG team with
rationale for the new instructions. The ESG team will then
support the portfolio
manager in developing voting decision rationale that aligns with this
policy and the
voting
principles. The ESG
team will then
submit the vote change to
the working
group. The working group will
review the change and ensure that the rationale is sound, and the decision will
promote the long-term
success of the issuer.
On
occasion, there may be proxy votes that are not
within the research and recommendation coverage universe of the proxy voting
service provider. Portfolio
managers responsible for the proxy votes will provide voting recommendations to
the ESG team and those
items may be escalated to the working
group for review
to ensure that the voting decision rationale is sound, and the decision will
promote the long-term success of the issuer. the Manulife IM
proxy
operations team will be
notified of the voting decisions and execute the votes accordingly.
Manulife IM
does not engage in the practice of “empty voting” (a term embracing a variety of
factual circumstances that result in a partial, or total, separation
of the right to vote at a shareholders meeting from beneficial ownership of the
shares on the meeting date). Manulife IM prohibits investment
managers from creating large hedge positions solely to gain the vote while
avoiding economic exposure to the market. Manulife IM will not knowingly
vote borrowed shares (for example, shares borrowed for short sales and hedging
transactions).
Engagement
of the proxy
voting service provider
Manulife IM
has contracted with a third-party proxy service provider to assist with the
proxy voting process. Except in instances where a client retains voting
authority, Manulife IM will instruct custodians of client accounts to forward
all proxy statements and materials received in respect of client accounts to
the proxy service provider.
Manulife IM
has engaged its proxy voting service provider to:
• |
Research
and make voting recommendations; |
• |
Ensure
proxies are voted and submitted in a timely
manner; |
• |
Provide
alerts when issuers file additional materials related to proxy voting
matters; |
• |
Perform
other administrative functions of proxy
voting; |
• |
Maintain
records of proxy statements and provide copies of such proxy statements
promptly upon request; |
• |
Maintain
records of votes cast; and |
• |
Provide
recommendations with respect to proxy voting matters in
general. |
Scope of
proxy
voting authority
Manulife IM
and our clients shape the proxy voting relationship by agreement provided there
is full and fair disclosure and informed consent. Manulife IM may
agree with clients to other proxy voting arrangements in which Manulife IM does
not assume proxy voting responsibility or will only vote in limited
circumstances.3
While the
application of our fiduciary duty in the context of proxy voting will vary with
the scope of the voting authority we assume, we acknowledge the relationship
in all cases remains that of a fiduciary to the client. Beyond the general
discretion retained by Manulife IM to withhold from voting as outlined
above, Manulife IM may enter a specific agreement with a client not to exercise
voting authority on certain matters where the cost of voting would be
high or the benefit to the client would be low.
Disclosure
of proxy
votes
Manulife IM
may inform company management of our voting intentions ahead of casting the
vote. This is in line with Manulife IM’s objective to provide the
opportunity for companies to better understand our investment process,
policies, and
objectives.
We will not
intentionally disclose to anyone else, including other investors, our voting
intention prior to casting the vote.
Manulife IM
keeps records of proxy voting available for inspection by clients, regulatory
authorities, or
government agencies.
Manulife IM
quarterly
discloses voting
records aggregated across funds.4
Conflicts
of interest
Manulife IM
has an established infrastructure designed to identify conflicts of interest
throughout all aspects of the business. Proxy voting proposals may raise
conflicts between the interests of Manulife IM’s clients and the interests of
Manulife IM, its affiliates, or employees. Apparent conflicts are reviewed by
the working
group to
determine whether there is a conflict of interest and, if so, whether the
conflict is material. Manulife IM shall consider any of the
following circumstances a potential material conflict of interest:
• |
Manulife
IM has a business relationship or potential relationship with the
issuer; |
• |
Manulife
IM has a business relationship with the proponent of the proxy proposal;
or |
• |
Manulife
IM members, employees or consultants have a personal or other business
relationship with managers of the business such as top-level executives,
corporate directors or director
candidates. |
In
addressing any such potential material conflict Manulife IM will seek to ensure
proxy votes are cast in the advisory client’s best interests and are not
affected by
Manulife IM’s potential conflict. In the event a potential material conflict of
interest exists, the working
group or its
designee will either (i)
review the
proxy voting decisions to ensure robust rationale, that the voting decision will
protect or enhance shareholder value over the long term,
and
is in line
with the best interest of the client; (ii) vote such proxy according to the
specific recommendation of the proxy voting services provider; (iii)
abstain; or
(iv) request the client vote such proxy. The basis for the voting decision,
including the process for the determination of the decision that is in
the best
interests of the client, is recorded.
Voting
shares of
Manulife Financial Corporation
Manulife
Financial Corporation (MFC) is the
publicly listed parent company of Manulife IM. Generally, legislation restricts
the ability of a public company
(and its subsidiaries) to hold shares in itself within its own accounts.
Accordingly, the MFC share
investment policy outlines
the limited circumstances
in which MFC or its subsidiaries may, or may not, invest or hold shares in MFC
on behalf of MFC or its subsidiaries.5
The MFC
share
investment policy does not
apply to investments made on behalf of unaffiliated third parties, which remain
assets of the client.6 Such
investing
may be restricted, however, by specific client guidelines, other Manulife
policies, or other
applicable laws.
Where
Manulife IM is charged with voting MFC shares, we will
execute votes in proportion with all other shareholders (i.e.,
proportional or echo vote).
This is
intended to neutralize the effect of our vote on the meeting
outcome.
Policy
responsibility
and oversight
The
working
group oversees
and monitors the policy and
Manulife IM’s proxy voting function. The working
group is
responsible for reviewing regular reports,
potential conflicts of interest, vote changes and nonroutine proxy
voting items. The working
group also
oversees the third-party proxy voting service
provider. The working
group will meet
at least monthly and report to the Manulife IM public
markets sustainable investing committee and,
where
requested, the Manulife IM operating
committee.
Manulife
IM’s proxy
operations team is
responsible for the daily administration of the proxy voting process for all
Manulife IM operations that have contracted
with a third-party proxy voting services provider. Significant proxy voting
issues identified by Manulife IM’s proxy
operations team are
escalated
to the chief
compliance officer or its
designee, and the working
group.
The
working
group is
responsible for the proper oversight of any service providers hired by Manulife
IM to assist it in the proxy voting process. This oversight
includes:
Annual
due
diligence: Manulife
IM conducts an annual due diligence review of the proxy voting research service
provider. This oversight includes an evaluation
of the service provider’s industry reputation, points of risk, compliance with
laws and regulations, and
technology infrastructure. Manulife IM also
reviews the provider’s capabilities to meet Manulife IM’s requirements, including
reporting competencies; the adequacy and quality of the proxy
advisory firm’s staffing and personnel; the quality and accuracy of sources of
data and information; the strength of policies and procedures that enable it
to make proxy voting recommendations based on current and accurate information;
and the strength of policies and procedures to address conflicts
of interest of the service provider related to its voting
recommendations.
Regular
Updates: Manulife
also requests that the proxy voting research service provider deliver updates
regarding any business changes that alter that firm’s
ability to provide independent proxy voting advice and services aligned with our
policies.
Additional
oversight
in process: Manulife
IM has additional control mechanisms built into the proxy voting process to act
as checks on the service provider
and ensure that decisions are made in the best interest of our clients. These
mechanisms include:
• |
Sampling
prepopulated
votes:
Where we use a
third-party research provider for either voting recommendations or voting
execution (or both), we may
assess prepopulated
votes shown on the vendor’s electronic voting platform before such votes
are cast to ensure alignment with the voting
principles.
|
• |
Decision
scrutiny from the working
group:
Where our voting policies and procedures do not address how to vote on a
particular matter, or where
the matter is highly contested or controversial (e.g.,
major acquisitions involving takeovers or contested director elections
where a shareholder
has proposed its own slate of directors), review by the working
group may
be necessary or appropriate to ensure votes cast on behalf of its
client are cast in the client’s best
interest. |
Recordkeeping
and reporting
Manulife IM
provides clients with a copy of the voting
policy on request
and it is also available on our website at manulifeim.com/institutional.
Manulife IM
describes its proxy voting procedures to its clients in the relevant or required
disclosure document and discloses to its clients the process to obtain
information
on how Manulife IM voted that client’s proxies.
Manulife IM
keeps records of proxy voting activities and those records include proxy voting
policies and procedures, records of votes cast on behalf of clients,
records of client requests for proxy voting information; and any documents
generated in making a vote decision. These documents are available
for inspection by clients, regulatory authorities, or
government agencies.
Manulife IM
discloses
voting
records on its website and those records are
updated on
a
quarterly basis. The
voting records generally
reflect the voting decisions
made for retail, institutional and other client funds in the
aggregate.
Policy
amendments
and exceptions
This policy
is subject to periodic review by the proxy
voting working group. The working group may
suggest amendments to this policy and any
such amendments
must be approved by the Manulife IM public
markets sustainable investing committee and the
Manulife IM operating
committee.
Any
deviation from this policy will only
be permitted with the prior approval of the chief
investment officer or chief administrative officer (or their
designee),
with the counsel of the chief
compliance officer/general counsel.
Appendix
A. Manulife IM advisory affiliates in scope of policy and investment management
business only.
Manulife
Investment Management Limited
Manulife
Investment Management (North America) Limited
Manulife
Investment Management (Hong Kong) Limited
PT Manulife
Aset Manajemen Indonesia*
Manulife
Investment Management (Japan) Limited Manulife
Investment
Management (Malaysia) Bhd. Manulife Investment
Management
and Trust Corporation
Manulife
Investment Management (Singapore) Pte. Ltd.
Manulife IM
(Switzerland) LLC
Manulife
Investment Management (Taiwan) Co., Ltd.*
Manulife
Investment Management (Europe) Limited
Manulife
Investment Management (US) LLC
Manulife
Investment Fund
Management (Vietnam) Company Limited*
*By reason
of certain local regulations and laws with respect to voting, for
example, manual/physical
voting processes or the absence of a third-party proxy
voting service provider for those jurisdictions, Manulife Investment Fund
Management (Vietnam) Company Limited, and PT Manulife Aset Manajemen
Indonesia do not engage a third-party service provider to assist in their proxy
voting processes. Manulife Investment Management (Taiwan) Co., Ltd.
Uses the third-party proxy voting service provider to execute votes for
non-Taiwanese entities only.
APPENDIX
B. Manulife
IM voting principles
Manulife IM
believes that strong management of all forms of corporate capital, whether
financial, social, or environmental will mitigate risks, create opportunities,
and drive value over the long term. Manulife IM reviews and considers
environmental, social, and corporate governance risks and opportunities
in our investment decisions. Once invested, Manulife IM continues our oversight
through active ownership, which includes portfolio company
engagement and proxy voting of underlying shares. We believe proxy voting is a
vital component of this continued oversight as it provides a voice for
minority shareholders regarding management actions.
Manulife IM
has developed some key principles that generally drive our proxy voting
decisions and engagements. We believe these principles preserve value and
generally lead to outcomes that drive positive firm performance. These
principles dictate our voting on issues ranging from director elections
and executive compensation to the preservation of shareholder rights and
stewardship of environmental and social capital. Manulife IM also adopts
positions on certain sustainability topics and these voting principles should be
read in conjunction with those position statements. Currently, we have a
climate change statement and an executive compensation statement that also help
guide proxy voting decisions on those matters. The facts and
circumstances of each issuer are unique, and Manulife IM may deviate from these
principles where we believe doing so will preserve or create value over
the long term. These principles also do not address the specific content of all
proposals voted around the globe, but provide a general lens of value
preservation, value creation, risk management, and protection of shareholder
rights through which Manulife IM analyzes all voting matters.
I.
Boards and directors: Manulife
IM uses the following principles to review proposals covering director elections
and board structure in the belief that they
encourage engaged and accountable leadership of a firm.
a. Board
independence: The most
effective boards are composed of directors with a diverse skill set that can
provide an objective view of the business,
oversee management, and make decisions in the best interest of the shareholder
body at large. To create and preserve this voice, boards should have
a significant number of non-executive, independent directors. The actual number
of independent directors can vary by market and Manulife IM
accounts for these differences when reviewing the independence of the board.
Ideally, however, there is an independent majority among directors
at a given firm.
b.
Committee independence: Manulife
IM also prefers that key board committees are composed of independent directors.
Specifically, the audit, nomination
and compensation committees should be entirely or majority composed of
independent directors.
c.
Attendance: A core
part of a director’s duties is to remain an engaged and productive participant
at board and committee meetings. Directors should,
therefore, attend at least 75% of board and committee meetings in the aggregate
over the course of a calendar year.
d.
Diversity: In line
with the principles expressed in relation to board of independence above,
Manulife IM believes boards with strong gender representation
are better equipped to manage risks and oversee business resilience over the
long term compared to firms with low gender balance. Manulife IM
generally expects boards to have at least one woman on the board and encourages
companies to aspire to a higher balance of gender representation.
Manulife IM also may hold boards in certain markets to a higher standard as
market requirements and expectations change. In Canada,
Europe, the United Kingdom, and Ireland, for example, we encourage boards to
achieve at least one-third female representation. We generally
encourage
boards to achieve racial and ethnic diversity among their members. We may, in
the future, hold nomination committee chairs accountable where the
board does not appear to have racial or ethnically diverse members.
e.
Classified/staggered boards: Manulife
IM prefers that directors be subject to election and re-election on an annual
basis. Annual elections operate to
hold directors accountable for their actions in a given year in a timely manner.
Shareholders should have the ability to voice concerns through a
director vote and to potentially remove problematic directors if necessary.
Manulife IM generally opposes the creation of classified or staggered
director election cycles designed to extend director terms beyond one year.
Manulife IM also supports proposals to eliminate these structures.
f.
Overboarding: Manulife
IM believes directors should limit their outside board seats in order to ensure
that they have the time and attention to provide
their director role at a firm in question. Generally, this means directors
should not sit on more than five public company boards. The role of CEO
requires an individual’s significant time and attention. Directors holding the
role of CEO at any public firm, therefore, generally should not sit on
more than
three public company boards inclusive of the firm at which they hold the CEO
role.
g.
Independent
chair/CEO: Governance
failures can occur where a manager has firm control over a board through the
combination of the chair/CEO roles.
Manulife IM generally supports the separation of the chair/CEO roles as a means
to prevent board capture by management. We may evaluate proposals
to separate the chair/CEO roles on a case-by-case basis, for example, however,
considering such factors as the establishment of a strong lead
independent director role or the temporary need for the combination of the
CEO/chair roles to help the firm through a leadership transition.
h. Vote
standard: Manulife
IM generally supports a vote standard that allows resolutions to pass, or fail,
based on a majority voting standard. Manulife IM
generally expects companies to adopt a majority vote standard for director
elections and supports the elimination of a plurality vote standard
except in the case of contested elections.
i.
Contested elections: Where
there is a proxy contest or a director’s election is otherwise contested,
Manulife IM evaluates the proposals on a case-by-case
basis. Consideration is given to firm performance, whether there have been
significant failures of oversight, and whether the proponent for change
makes a compelling case that board turnover will drive firm value.
j.
Significant and problematic actions or omissions: Manulife
IM believes boards should be held accountable to shareholders in instances where
there is a
significant failure of oversight that has led to a loss of firm value,
transparency failure or otherwise curtailed shareholder rights. Manulife IM
generally
considers withholding from, or voting against, certain directors in these
situations. Some examples of actions that might warrant a vote against
directors include, but are not limited to, the following:
Failure
of oversight: Manulife
IM may take action against directors where there has been a significant negative
event leading to a loss of shareholder value and
stakeholder confidence. A failure may manifest itself in multiple ways,
including adverse auditor opinions, material misstatements, failures
of
leadership and governance, failure to manage ESG risks, environmental or human
rights violations, and poor sustainability reporting.
Adoption
of anti-takeover mechanism: Boards
should generally review takeover offers independently and objectively in
consideration of the potential
value created or lost for shareholders. Manulife IM generally holds boards
accountable when they create or prolong certain mechanisms, bylaws or
article amendments that act to frustrate genuine offers that may lead to value
creation for shareholders. These can include poison pills; classes of
shares with differential voting rights; classified, or staggered, board
structures; and unilateral bylaw amendments and supermajority voting
provisions.
Problematic
executive compensation practices: Manulife
IM encourages companies to adopt best practices for executive compensation in
the markets in
which they operate. Generally, this means that pay should be aligned with
performance. Manulife IM may hold directors accountable where this
alignment is not robust. We may also hold boards accountable where they have not
adequately responded to shareholder votes against a previous proposal on
remuneration or have adopted problematic agreements or practices (e.g., golden
parachutes, repricing of options).
Bylaw/article
adoption and amendments:
Shareholders should have the ability to vote on any change to company articles
or bylaws that will materially
change their rights as shareholders. Any amendments should require only a
majority of votes to pass. Manulife IM will generally hold directors
accountable where a board has amended or adopted bylaw and/or article provisions
that significantly curtail shareholder rights.
Engagement
responsiveness: Manulife
IM regularly engages with issuers to discuss ESG risks and opportunities and may
request changes from firms
during these discussions. Manulife IM may vote against certain directors where
we have engaged with an issuer and requested certain changes, but the
firm has not made sufficient progress on those matters.
II.
Environmental and social proposals: Manulife
IM expects its portfolio companies to manage material environmental and social
issues affecting their
businesses, whether risks or opportunities, with a view towards long-term value
preservation and creation. 7 Manulife IM expects firms to identify material
environmental and social risks and opportunities specific to their businesses,
to develop strategies to manage those matters, and to provide meaningful,
substantive reporting while demonstrating progress year over year against their
management plans. Proposals touching on management of risks
and opportunities related to environmental and social issues are often put forth
as shareholder proposals but can be proposed by management
as well. Manulife IM generally supports shareholder proposals that request
greater transparency or adherence to internationally recognized
standards and principles regarding material environmental and social risks and
opportunities.
a. The
magnitude of the risk/opportunity: Manulife
IM evaluates the level of materiality of a certain environmental or social issue
identified in a proposal as
it pertains to the firm’s ability to generate value over the long term. This
review includes deliberation of the effect an issue will have on the
financial
statements and/or the cost of capital.
b. The
firm’s current management of the risk/opportunity: Manulife
IM analyzes a firm’s current approach to an issue to determine whether the
firm has
robust plans, infrastructure, and reporting to mitigate the risk or embrace the
opportunity. Recent controversies, litigation, or penalties related to
a given risk are also considered.
c. The
firm’s current disclosure framework: Manulife
IM expects firms to disclose enough information for shareholders to assess the
company’s management
of environmental and social risks and opportunities material to the business.
Manulife IM may support proposals calling for enhanced firm
disclosure regarding environmental and social issues where additional
information would help our evaluation of a company’s exposure, and response,
to those factors.
d.
Legislative or regulatory action of a risk/opportunity: When
reviewing proposals on environmental or social factors, Manulife IM considers
whether a
given risk or opportunity is currently addressed by local regulation or law in
the markets in which a firm operates and whether those rules are
designed to adequately manage an issue. Manulife IM also considers whether a
firm should proactively address a matter in anticipation of future legislation
or regulation.
e. Cost
to, or disruption of, the business: When
reviewing environmental and social proposals, Manulife IM assesses the potential
cost of the requested
action against the benefit provided to the firm and its shareholders. Particular
attention is paid to proposals that request actions that are overly
prescriptive on management or that request a firm exit markets or operations
that are essential to its business.
III.
Shareholder rights: Manulife
IM generally supports management or shareholder proposals that protect, or
improve, shareholder rights and opposes
proposals that remove, or curtail, existing rights.
a.
Shareholder rights plans (poison pills): Manulife
IM generally opposes mechanisms intended to frustrate genuine takeover offers.
Manulife IM may,
however, support shareholder rights plans where the plan has a trigger of 20%
ownership or more and will expire in three years or less. In conjunction
with these requirements, Manulife IM evaluates the company’s strategic rationale
for adopting the poison pill.
b.
Supermajority voting:
Shareholders should have the ability to direct change at a firm based on a
majority vote. Manulife IM generally opposes the creation,
or continuation, of any bylaw, charter, or article provisions that require
approval of more than a majority of shareholders for amendment of those
documents. Manulife IM may consider supporting such a standard where the
supermajority requirement is intended to protect minority shareholders.
c. Proxy
access: Manulife
IM believes that shareholders have a right to appoint representatives to the
board that best protect their interests. The power to
propose nominees without holding a proxy contest is a way to protect that right
and is potentially less costly to management and shareholders.
Accordingly, Manulife IM generally supports creation of a proxy access right (or
similar power at non-U.S. firms) provided there are reasonable
thresholds of ownership and a reasonable number of shareholders can aggregate
ownership to meet those thresholds.
d.
Written consent: Written
consent provides shareholders the power to formally demand board action outside
of the context of an annual general meeting.
Shareholders can use written consent as a nimble method of holding boards
accountable. Manulife IM generally supports the right of written consent so
long as that right is reasonably tailored to reflect the will of a majority of
shareholders. Manulife IM may not support such a right, however, where there
is a holder with a significant, or controlling, stake. Manulife IM evaluates the
substance of any written actual consent proposal in line with these
principles.
e. Right
to call a special meeting: Manulife
IM is supportive of the shareholder right to call a special meeting. This right
allows shareholders to quickly
respond to events which can significantly affect firm value. Manulife IM
believes that a 10% ownership threshold to call a special meeting reasonably
protects this shareholder right while reducing the possibility of undue
distraction for management.
IV.
Executive compensation: Manulife
IM encourages companies to align executive incentives with shareholder interests
when designing executive compensation
plans. Companies should provide shareholders with transparent, comprehensive,
and substantive disclosure regarding executive compensation
that aids shareholder assessment of the alignment between executive pay and firm
performance. Companies should also have the flexibility
to design remuneration programs that fit a firm’s business model, business
sector and industry, and overall corporate strategy. No one template of
executive remuneration can fit all companies.
a.
Advisory votes on executive compensation: While
acknowledging that there is no singular model for executive compensation,
Manulife IM closely
scrutinizes companies that have certain concerning practices which may
include:
i.
Misalignment between pay and company performance: Pay should
generally move in tandem with corporate performance. Firms where CEO
pay remains
flat, or increases, though corporate performance remains down relative to peers,
are particularly concerning.
ii.
One-time grants: A firm’s
one-time grant to an executive, outside of the normal salary, bonus, and
long-term award structure, may be indicative of an overall
failure of the board to design an effective remuneration plan. A company should
have a robust justification for making grants outside of the normal
remuneration framework.
iii.
Significant quantity of nonperformance-based pay: Executive
pay should generally be weighted more heavily toward performance-based
remuneration
to create the alignment between pay and performance. Companies should provide a
robust explanation for any significant awards made that vest
solely based on time or are not otherwise tied to performance.
iv. Lack
of rigor in performance targets:
Performance targets should challenge managers to improve corporate performance
and outperform peers.
Targets should,where applicable, generally align with, or even outpace,
guidance; incentivize outperformance against a peer group; and otherwise
remain challenging.
v. Lack
of disclosure:
Transparency is essential to shareholder analysis and understanding of executive
remuneration at a company. Manulife IM expects
firms toclearly disclose all major components of remuneration. This includes
disclosure of amounts, performance metrics and targets, vesting terms, and
pay outcomes.
vi.
Repricing of options: Resetting
the exercise price of outstanding options significantly undermines the incentive
nature of the initial option grant. Though a
firm may have a strong justification for repricing options, Manulife IM believes
that firms should put such decisions to a shareholder vote. Manulife IM
may generally oppose an advisory vote on executive compensation where a company
has repriced outstanding options for executives without
that shareholder approval.
vii.
Adoption of problematic severance agreements (golden
parachutes): Manulife
IM believes managers should be incentivized to pursue and complete
transactions that may benefit shareholders. Severance agreements, if structured
appropriately, can provide such inducements. At the same time,
however, the significant payment associated with severance agreements could
potentially drive managers to pursue transactions at the expense of
shareholder value. Manulife IM may generally oppose an executive remuneration
proposal where a firm has adopted, or amended, an agreement with an
executive that contains an excise tax gross-up provision, permits accelerated
vesting of equity upon a change-in-control, allows an executive to unilaterally
trigger the severance payment, or pays out in an amount greater than 300% of
salary and bonus combined.
V.
Capital structure: Manulife
IM believes firms should balance the need to raise capital and encourage
investment with the rights and interests of the
existing shareholder body. Evaluation of proposals to issue shares, repurchase
shares, conduct stock splits, or otherwise restructure capital, is conducted
on a case-by-case basis with some specific requests covered here:
a.
Common stock authorization: Requests
to increase the pool of shares authorized for issuance are evaluated on a
case-by-case basis with consideration
given to the size of the current pool, recent use of authorized shares by
management, and the company rationale for the proposed increase.
Manulife IM also generally supports these increases where the company intends to
execute a split of shares or pay a stock dividend.
b.
Reverse stock splits: Manulife
IM generally supports proposals for a reverse stock split if the company plans
to proportionately reduce the number of shares
authorized for issue in order to mitigate against the risk of excessive dilution
to our holdings. We may also support these proposals in instances
where the firm needs to quickly raise capital in order to continue
operations.
c. Dual
class voting structure: Voting
power should align with economic interest at a given firm. Manulife IM generally
opposes the creation of new classes of
stock with differential voting rights and supports the elimination of these
structures.
VI.
Corporate transactions and restructurings: Manulife
IM reviews mergers, acquisitions, restructurings, and reincorporations on a
case-by-case basis
through the lens of whether the transaction will create shareholder value.
Considerations include fairness of the terms, valuation of the event,
changes to
management and leadership, realization of synergies and efficiencies, and
whether the rationale for a strategic shift is compelling.
VII.
Cross shareholding: Cross
shareholding is a practice where firms purchase equity shares of business
partners, customers, or suppliers in support of
those relationships. Manulife IM generally discourages this practice as it locks
up firm capital that could be allotted to income-generating investments
or otherwise returned to shareholders. Manulife IM will review cross
shareholding practices at issuers and we encourage issuers to keep cross share
holdings below 20% of net assets.
VIII.
Audit-related issues: Manulife
IM believes that an effective auditor will remain independent and objective in
its review of company reporting. Firm should
be transparent regarding auditor fees and others services provided by an auditor
that may create a conflict of interest. Manulife IM uses the below
principles to guide voting decisions related to auditors.
a.
Auditor ratification: Manulife
IM generally approves the reappointment of the auditor absent evidence that they
have either failed in their duties or appear to
have a conflict that may not allow independent and objective oversite of a
firm.
b.
Auditor rotation: If
Manulife IM believes that the independence and objectivity of an auditor maybe
impaired at a firm, we may support a proposal requesting
a rotation of auditor. Reasons to support the rotation of the auditor can
include a significant failure in the audit function and excessive tenure of
the auditor at the firm.
1 Manulife
Investment Management is the unified global brand for Manulife’s global wealth
and asset management business, which serves individual investors
and institutional clients in three businesses: retirement, retail and
institutional asset management (Public markets and private
markets).
2 Further
information on Sustainable Investing at Manulife IM can be found at
manulifeim.com/institutional.
3 We
acknowledge SEC guidance on this issue from August 2019, which lists several
nonexhaustive examples of possible voting arrangements between the
client and investment advisor, including (i) an agreement with the client to
exercise voting authority pursuant to specific parameters designed to
serve the client’s best interest; (ii) an agreement with the client to vote in
favor of all proposals made by particular shareholder proponents;
or (iii) an agreement with the client to vote in accordance with the voting
recommendations of management of the issuer. All such arrangements
could be subject to conditions depending on instruction from the
client.
4 Manulife
IM aggregated voting records are available through this site
manulifeim.com/institutional/us/en/sustainability.
5 This
includes general funds, affiliated segregated funds or separate accounts, and
affiliated mutual / pooled funds.
6 This
includes assets managed or advised for unaffiliated third parties, such as
unaffiliated mutual/pooled funds and unaffiliated institutional advisory
portfolios.
WELLINGTON
MANAGEMENT
GLOBAL
PROXY POLICY AND PROCEDURES
September
1, 2020
INTRODUCTION
Wellington
Management has adopted and implemented policies and procedures that it believes
are reasonably designed to ensure that proxies are voted in
the best interests of clients for whom it exercises proxy-voting
discretion.
Wellington
Management’s Proxy Voting Guidelines (the “Guidelines”) set forth broad
guidelines and positions on common proxy issues that Wellington Management
uses in voting on proxies In addition, Wellington Management also considers each
proposal in the context of the issuer, industry and country or
countries in which the issuer’s business is conducted. The Guidelines are not
rigid rules and the merits of a particular proposal may cause Wellington
Management to enter a vote that differs from the Guidelines. Wellington
Management seeks to vote all proxies with the goal of increasing long-term
client value and, while client investment strategies may differ, applying this
common set of guidelines is consistent with the investment objective
of achieving positive long-term investment performance for each
client.
STATEMENT
OF POLICY
Wellington
Management:
1 |
Votes
client proxies for which clients have affirmatively delegated proxy-voting
authority, in writing, unless it has arranged in advance with the client
to
limit the circumstances in which it would exercise voting authority or
determines that it is in the best interest of one or more clients to
refrain from
voting a given proxy. |
2 |
Votes
all proxies in the best interests of the client for whom it is
voting. |
3 |
Identifies
and resolves all material proxy-related conflicts of interest between the
firm and its clients in the best interests of the
client. |
RESPONSIBILITY
AND OVERSIGHT
The
Investment Research Group (“Investment Research”) monitors regulatory
requirements with respect to proxy voting and works with the firm’s Legal
and
Compliance Group and the Investment Stewardship Committee to develop practices
that implement those requirements. Investment Research also acts
as a resource for portfolio managers and research analysts on proxy matters as
needed. Day-to-day administration of the proxy voting process is
the responsibility of Investment Research. The Investment Stewardship Committee
is responsible for oversight of the implementation of the Global
Proxy Policy and Procedures, review and approval of the Guidelines,
identification and resolution of conflicts of interest, and for providing
advice and
guidance on specific proxy votes for individual issuers. The Investment
Stewardship Committee reviews the Global Proxy Policy and Procedures
annually.
PROCEDURES
Use of
Third-Party Voting Agent
Wellington
Management uses the services of a third-party voting agent for research, voting
recommendations, and to manage the administrative aspects of
proxy voting. The voting agent processes proxies for client accounts, casts
votes based on the Guidelines and maintains records of proxies voted.
Wellington Management complements the research received by its primary voting
agent with research from another voting agent.
Receipt
of Proxy
If a client
requests that Wellington Management votes proxies on its behalf, the client must
instruct its custodian bank to deliver all relevant voting material to
Wellington Management or its voting agent.
Reconciliation
Each public
security proxy received by electronic means is matched to the securities
eligible to be voted and a reminder is sent to any custodian or trustee
that has not forwarded the proxies as due. This reconciliation is performed at
the ballot level. Although proxies received for private securities, as well as
those received in non- electronic format, are voted as received, Wellington
Management is not able to reconcile these ballots, nor does it notify
custodians of non-receipt.
Research
In addition
to proprietary investment research undertaken by Wellington Management
investment professionals, Investment Research conducts proxy research
internally, and uses the resources of a number of external sources including
third-party voting agents to keep abreast of developments in corporate
governance and of current practices of specific companies.
Proxy
Voting
Following
the reconciliation process, each proxy is compared against the Guidelines, and
handled as follows:
• |
Generally,
issues for which explicit proxy voting guidance is provided in the
Guidelines (i.e., “For”, “Against”, “Abstain”) are voted in accordance
with the
Guidelines. |
• |
Issues
identified as “case-by-case” in the Guidelines are further reviewed by
Investment Research. In certain circumstances, further input is needed,
so
the issues are forwarded to the relevant research analyst and/or portfolio
manager(s) for their input. |
• |
Absent
a material conflict of interest, the portfolio manager has the authority
to decide the final vote. Different portfolio managers holding the same
securities
may arrive at different voting conclusions for their clients’
proxies. |
Wellington
Management reviews a subset of the voting record to ensure that proxies are
voted in accordance with these Global
Proxy Policy and Procedures
and the Guidelines; and
ensures that documentation and reports, for clients and for internal purposes,
relating to the voting of proxies are promptly
and properly prepared and disseminated.
Material
Conflict of Interest Identification and Resolution Processes
Wellington
Management’s broadly diversified client base and functional lines of
responsibility serve to minimize the number of, but not prevent, material
conflicts of interest it faces in voting proxies. Annually, the Investment
Stewardship Committee sets standards for identifying material conflicts
based on client, vendor, and lender relationships, and publishes those standards
to individuals involved in the proxy voting process. In addition,
the Investment Stewardship Committee encourages all personnel to contact
Investment Research about apparent conflicts of interest, even if the
apparent conflict does not meet the published materiality criteria. Apparent
conflicts are reviewed by designated members of the Investment Stewardship
Committee to determine if there is a conflict and if so whether the conflict is
material.
If a proxy
is identified as presenting a material conflict of interest, the matter must be
reviewed by designated members of the Investment Stewardship Committee,
who will resolve the conflict and direct the vote. In certain circumstances, the
designated members may determine that the full Investment Stewardship
Committee should convene.
OTHER
CONSIDERATIONS
In certain
instances, Wellington Management may be unable to vote or may determine not to
vote a proxy on behalf of one or more clients. While not exhaustive,
the following are potential instances in which a proxy vote might not be
entered.
Securities
Lending
In general,
Wellington Management does not know when securities have been lent out pursuant
to a client’s securities lending program and are therefore
unavailable to be voted. Efforts to recall loaned securities are not always
effective, but, in rare circumstances, Wellington Management may determine
voting would outweigh the benefit to the client resulting from use of securities
for lending and recommend that a client attempt to have its custodian
recall the security to permit voting of related proxies.
Share
Blocking and Re-registration
Certain
countries impose trading restrictions or requirements regarding re-registration
of securities held in omnibus accounts in order for shareholders
to vote a proxy. The potential impact of such requirements is evaluated when
determining whether to vote such proxies.
Lack of
Adequate Information, Untimely Receipt of Proxy Materials, or Excessive
Costs
Wellington
Management may abstain from voting a proxy when the proxy statement or other
available information is inadequate to allow for an informed
vote, when the proxy materials are not delivered in a timely fashion or when, in
Wellington Management’s judgment, the costs exceed the expected
benefits to clients (such as when powers of attorney or consularization are
required).
ADDITIONAL
INFORMATION
Wellington
Management maintains records related to proxies pursuant to Rule 204-2 of the
Investment Advisers Act of 1940 (the “Advisers Act”), the Employee
Retirement Income Security Act of 1974, as amended (“ERISA”), and other
applicable laws. In addition, Wellington Management discloses annually
how it has exercised its voting rights for significant votes, as require by the
EU Shareholder Rights Directive II (“SRD II”).
Wellington
Management provides clients with a copy of its Global
Proxy Policy and Procedures, including
the Guidelines, upon written request. In addition,
Wellington Management will provide specific client information relating to proxy
voting to a client upon written request.
Dated: 1
September 2020