JOHN HANCOCK INVESTMENT TRUST
Statement of
Additional Information
John Hancock Current
Interest
John
Hancock Funds III
John
Hancock Investment Trust
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John
Hancock Current Interest |
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John
Hancock Money Market Fund |
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John
Hancock Disciplined Value Fund |
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John
Hancock Disciplined Value Mid Cap Fund |
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John
Hancock Global Shareholder Yield Fund |
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John
Hancock International Growth Fund |
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John
Hancock U.S. Growth Fund |
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John
Hancock Investment Trust |
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John
Hancock Diversified Real Assets Fund |
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John
Hancock Fundamental Equity Income Fund |
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John
Hancock Mid Cap Growth Fund |
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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,
2023, 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 for the period ended
March 31, 2023, 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, 2023 are available
through the link(s) in the following table:
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.
John
Hancock Money Market Fund |
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Form
N-CSR filed May 12, 2023 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 12, 2023 for:
John
Hancock Diversified Real Assets Fund
John
Hancock Fundamental Equity Income 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
800-225-5291
jhinvestments.com
Glossary
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the
Securities Act of 1933, as amended |
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the
Investment Company Act of 1940, as amended |
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the
Investment Advisers Act of 1940, as amended |
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John
Hancock Investment Management LLC (formerly, John Hancock Advisers,
LLC), 200 Berkeley Street,
Boston,
Massachusetts 02116 |
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an
investment advisory agreement or investment management contract between
the Trust and the Advisor |
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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 |
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business
development companies |
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Board
of Trustees of the Trust |
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Mutual
Bond Market Access between Mainland China and Hong
Kong |
“Brown
Brothers Harriman” |
Brown
Brothers Harriman & Co. |
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Certificates
of Accrual on Treasury Securities |
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Collateralized
Bond Obligations |
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Contingent
Deferred Sales Charge |
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the
Commodity Exchange Act, as amended |
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China
interbank bond market |
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Collateralized
Loan Obligations |
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Collateralized
Mortgage Obligations |
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the
Internal Revenue Code of 1986, as amended |
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Consumer
Price Index for Urban Consumers |
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Commodity
Futures Trading Commission |
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Citibank,
N.A., 388 Greenwich Street, New York, NY 10013 |
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John
Hancock Investment Management Distributors LLC (formerly,
John Hancock Funds, LLC), 200 Berkeley
Street,
Boston, Massachusetts 02116 |
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Economic
and Monetary Union |
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Federal
National Mortgage Association |
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Federal
Housing Finance Agency |
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Federal
Intermediate Credit Banks |
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Federal
Home Loan Mortgage Corporation |
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The
John Hancock funds within this SAI as noted on the front cover and as the
context may require |
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funds
that seek to achieve their investment objectives by investing in
underlying funds, as permitted by
Section
12(d) of the 1940 Act and the rules thereunder |
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Government
National Mortgage Association |
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Hong
Kong Securities Clearing Company |
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Individual
Retirement Account |
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John
Hancock Collateral Trust |
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John
Hancock Distributors, LLC |
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John
Hancock Life Insurance Company of New York |
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John
Hancock Life Insurance Company (U.S.A.) |
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London
Interbank Offered Rate |
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Monthly
Automatic Accumulation Program |
“Manulife
Financial” or “MFC” |
Manulife
Financial, a publicly traded company based in Toronto,
Canada |
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Manulife
Investment Management (North America) Limited (formerly, John Hancock
Asset Management a
Division
of Manulife Asset Management (North America)
Limited) |
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Manulife
Investment Management (US) LLC (formerly, John Hancock Asset Management a
Division of Manulife
Asset
Management (US) LLC) |
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Markets
in Financial Instruments Directive |
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Moody’s
Investors Service, Inc |
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Nationally
Recognized Statistical Rating Organization |
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Planned
Amortization Class |
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Personal
Financial Services |
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People's
Republic of China |
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Real
Estate Investment Trusts |
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Regulated
Investment Company |
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John
Hancock Retirement Plan Services |
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Salary
Reduction Simplified Employee Pension Plan |
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Securities
and Exchange Commission |
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Simplified
Employee Pension |
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Savings
Incentive Match Plan for Employees |
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Student
Loan Marketing Association |
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Special
Purpose Acquisition Companies |
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State
Street Bank and Trust Company, One Congress Street, Suite 1, Boston, MA
02114 |
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Hong
Kong Stock Connect Program |
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Any
subadvisors employed by John Hancock within this SAI as noted in Appendix
B and as the context may
require |
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Target
Amortization Class |
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Treasury
Receipts, Treasury Investors Growth
Receipts |
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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 |
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“unaffiliated
underlying funds” |
underlying
funds that are advised by an entity other than John Hancock’s investment
advisor or its affiliates |
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funds
in which the funds of funds invest |
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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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John
Hancock Current Interest |
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John
Hancock Investment Trust |
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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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Commencement
of Operations |
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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 |
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Fundamental
Equity Income Fund |
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Global
Shareholder Yield Fund |
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International
Growth Fund |
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October
17, 2005 (predecessor fund inception date; became a series of the Trust
on October 18, 2021) |
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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:
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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:
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“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.
Borrowing
Unless otherwise
prohibited, a fund may borrow money in an amount that does not exceed 33% of its
total assets. Borrowing by a fund involves leverage, which may
exaggerate any increase or decrease in a fund’s investment performance and in
that respect may be considered a speculative practice. The
interest that a fund must pay on any borrowed money, additional fees to maintain
a line of credit or any minimum average balances required to be
maintained are additional costs that will reduce or eliminate any potential
investment income and may offset any capital gains. Unless the appreciation and
income, if any, on the asset acquired with borrowed funds exceed the cost of
borrowing, the use of leverage will diminish the investment
performance of a fund.
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
A fund may
not
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.
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 33 1∕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, 2023, 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, 2023.
|
|
Disciplined
Value
Mid Cap
Fund |
Diversified
Real
Assets
Fund |
Global
Shareholder
Yield
Fund |
Gross
Income from securities lending activities ($) |
|
|
|
|
Fees
and/or compensation for securities lending activities and related
services |
|
|
|
|
Fees
paid to securities lending agent from a revenue split
($) |
|
|
|
|
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 ($) |
|
|
|
|
Administrative
fees not included in revenue split |
|
|
|
|
Indemnification
fee not included in revenue split |
|
|
|
|
Rebate
(paid to borrower) ($) |
|
|
|
|
Other
fees not included in revenue split (specify) |
|
|
|
|
Aggregate
fees/compensation for securities lending activities
($) |
|
|
|
|
Net
Income from securities lending activities ($) |
|
|
|
|
|
International
Growth
Fund |
|
|
Gross
Income from securities lending activities ($) |
|
|
|
Fees
and/or compensation for securities lending activities and related
services |
|
|
|
Fees
paid to securities lending agent from a revenue split
($) |
|
|
|
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 ($) |
|
|
|
Administrative
fees not included in revenue split |
|
|
|
Indemnification
fee not included in revenue split |
|
|
|
Rebate
(paid to borrower) ($) |
|
|
|
Other
fees not included in revenue split (specify) |
|
|
|
Aggregate
fees/compensation for securities lending activities
($) |
|
|
|
Net
Income from securities lending activities ($) |
|
|
|
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.” 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.
As
further outlined in the
“Government Regulation
of Derivatives”
section,
the SEC
adopted Rule 18f-4 (the
“Derivatives Rule”) on October 28, 2020, and in
doing so announced it would rescind SEC releases, guidance and no-action letters
related to funds’ coverage and asset segregation practices. Funds were required
to comply with the Derivatives Rule requirements by August 19,
2022.
Covered rolls will be entered into in accordance with the regulatory
requirements described in
“Government Regulation
of Derivatives”
section. 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.
High
Yield (High Risk) Municipal Debt Obligations.
Municipal bonds rated
“BBB” or “BB” by S&P or Fitch, or “Baa” or “Ba” by Moody’s, or lower (and
their
unrated equivalents) are considered to have some speculative characteristics
and, to varying degrees, can pose special risks generally involving the ability of the
issuer to make payment of principal and interest to a greater extent than higher
rated securities.
A subadvisor may be
authorized to purchase lower-rated municipal bonds when, based upon price, yield
and its assessment of quality, investment in these bonds is
determined to be consistent with a fund’s investment objectives. The subadvisor
will evaluate and monitor the quality of all investments, including lower-rated
bonds, and will dispose of these bonds as determined to be necessary to assure
that the fund’s portfolio is constituted in a manner consistent with these
objectives. To the extent that a fund’s investments in lower-rated municipal
bonds emphasize obligations believed to be consistent with the goal of
preserving capital, these obligations may not provide yields as high as those of
other obligations having these ratings, and the differential in
yields between these bonds and obligations with higher quality ratings may not
be as significant as might otherwise be generally available. The Prospectus for
certain funds includes additional information regarding a fund’s ability to
invest in lower-rated debt obligations under “Principal investment
strategies.”
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.
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.
Subject to the
requirements noted under “Government Regulation of Derivatives”, a fund will
either treat reverse repurchase agreements and similar financings, including
sale-buybacks, as derivatives subject to the Derivatives Rule limitations or not
as derivatives and treat reverse repurchase agreements and
similar financings transactions as senior securities equivalent to bank
borrowings subject to asset coverage requirements of Section 18 of the
1940 Act. A fund will ensure that its repurchase agreement transactions are
“fully collateralized” by maintaining in a custodial account cash,
Treasury bills, other U.S. government securities, or certain 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.
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.
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.
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. Until
a fund
replaces a borrowed security, the fund will adhere
to requirements outlined
in the “Government Regulation of Derivatives” section. The SEC adopted the
Derivatives Rule on October 28,
2020,
and in doing so announced it would
rescind SEC releases,
guidance
and no-action letters
related to funds’
coverage
and asset segregation practices.
Funds
were required to comply
with the Derivatives Rule requirements
by
August
19,
2022. 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 specific fund details
in the “Portfolio
Turnover” section of this
SAI.
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.
As further outlined
in the
“Government Regulation
of Derivatives” section,
the SEC
adopted the Derivatives Rule on October
28, 2020,
and in
doing so announced it would
rescind SEC releases,
guidance
and
no-action letters
related to funds’
coverage
and asset segregation practices.
Funds
were required to comply
with the Derivatives Rule
requirements by
August
19,
2022. When-issued or forward
settling securities transactions physically settling within
35-days
are deemed not to involve a senior
security.
When-issued or forward
settling securities
transactions that do
not physically
settle
within
35-days
are required to be treated as derivatives transactions in compliance with the
Derivatives Rule as outlined in
the
“Government Regulation
of
Derivatives” section.
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 characteristics or excluding
companies with high ESG characteristics 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 regarding the
economic relationship between the UK and the EU. 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).
Beginning in March
2022, the Fed began increasing interest rates and has signaled the potential for
further increases. It is difficult to accurately predict the pace at which the
Fed will increase interest rates any further, or the timing, frequency or
magnitude of any such increases, and the evaluation of macro-economic and
other conditions could cause a change in approach in the future. Any such
increases generally will cause market interest rates to rise, 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.
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 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.
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.
Communication.
Companies in the
communication 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
communication 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 communication companies in their primary markets.
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. Global oil prices
are
susceptible
to
and have experienced
significant
volatility, including a period where an oil-price futures contract fell into
negative territory for the first time in history during the beginning
of the
coronavirus (COVID-19) pandemic, 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.
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:
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
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.
Beginning in March
2022, the Fed began increasing interest rates and has signaled the potential for
further increases. As a result, risks associated with rising interest rates
are currently heightened. It is difficult to accurately predict the pace at
which the Fed will increase interest rates any further, or the timing, frequency or
magnitude of any such increases, and the evaluation of macro-economic and other
conditions could cause a change in approach in the future. Any such
increases generally will cause market interest rates to rise 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.
In addition,
as the
Fed
increases the target Fed funds
rate, any such rate
increases, 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. 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 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 regarding the
economic relationship between the UK and the EU. 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.
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.
Preferred
and Convertible Securities Risk
Preferred stock
generally has a preference as to dividends and liquidation over an issuer’s
common stock but ranks junior to debt securities in an issuer’s capital
structure. Unlike interest payments on debt securities, preferred stock
dividends are payable only if declared by the issuer’s board of directors. Also,
preferred stock may be subject to optional or mandatory redemption provisions.
The market values of convertible securities tend to fall as interest rates
rise and rise as interest rates fall. The value of convertible preferred stock
can depend heavily upon the value of the security into which such convertible
preferred stock is converted, depending on whether the market price of the
underlying security exceeds the conversion price.
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
have 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.
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
“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 are subject to the
requirements outlined in the “Government
Regulation
of
Derivatives”
section.
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. 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.
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.
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 are
subject
to the requirements outlined
in the
“Government Regulation
of Derivatives” section.
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) 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.
A fund will
only
engage
in transactions in futures contracts and related options subject to complying
with the Derivatives Rule. The Derivatives Rule requirements are
outlined in the “Government Regulation of Derivatives” section. 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.
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 and are subject to
the requirements outlined in the “Government Regulation of Derivatives”
section. 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 regulatory
limitations outlined in the “Government Regulation
of Derivatives”
section.
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.
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).
A
fund's use
of swap
agreements or Swap Options are
subject to the
regulatory
limitations
outlined
in the
“Government
Regulation of
Derivatives”
section.
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. 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 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). A fund's ability to
be
a “buyer” or “seller” of CDS is
subject
to the
regulatory limitations outlined in the “Government
Regulation of
Derivatives” section.
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.
Government
Regulation of Derivatives
The regulation of the
U.S.
and
non-U.S.
derivatives markets has undergone substantial change in recent years and such
change may continue. In particular, effective
August
19, 2022 (the “Compliance
Date”),
Rule
18f-4 under the 1940 Act
(the “Derivatives Rule”) replaced the asset segregation regime of Investment
Company Act Release No. 10666 (“Release 10666”) with a new framework for the use
of derivatives by registered funds. As of the Compliance
Date,
the SEC
rescinded Release 10666 and withdrew no-action letters and
similar
guidance addressing
a
fund’s use of derivatives
and began requiring funds
to satisfy the requirements of the Derivatives Rule. As a result,
on or
after the Compliance
Date, the funds will no longer
engage in
“segregation” or “coverage”
techniques with
respect to derivatives transactions and will instead comply with the applicable
requirements of the Derivatives
Rule.
The Derivatives Rule
mandates that a fund adopt and/or
implement:
(i)
value-at-risk
limitations
(“VaR”);
(ii)
a
written derivatives risk management program;
(iii)
new
Board oversight
responsibilities;
and
(iv)
new
reporting
and
recordkeeping requirements.
In the
event that a fund’s
derivative exposure
is
10% or
less of
its net assets, excluding certain currency and interest rate hedging
transactions, it can elect to be
classified as a limited derivatives user (“Limited
Derivatives User”) under the Derivatives Rule,
in which
case the fund is not subject to the full requirements of the
Derivatives Rule. Limited Derivatives
Users are excepted from VaR testing, implementing a derivatives risk management
program, and certain Board oversight and reporting
requirements mandated by the Derivatives Rule. However, a Limited
Derivatives User is still required to implement written compliance policies
and
procedures reasonably designed to manage its derivatives
risks.
The Derivatives Rule
also provides special treatment for reverse repurchase agreements, similar financing
transactions and unfunded commitment agreements. Specifically, a fund may elect
whether
to treat
reverse repurchase agreements and similar financing transactions as “derivatives
transactions” subject
to the requirements of the Derivatives Rule or as senior securities equivalent
to bank borrowings for purposes of Section 18 of the
1940
Act.
Repurchase agreements
are not subject to the
Derivatives
Rule,
but are
still subject to other provisions of the 1940 Act. In addition,
when-issued or forward settling
securities transactions
that
physically
settle
within 35-days are deemed not
to involve a senior security.
Furthermore,
it
is
possible that additional government regulation of various types of derivative
instruments
may
limit or prevent a fund from using such instruments as part
of its investment strategy in the
future,
which could negatively impact the fund. 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.
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 are
subject
to the Derivatives Rule
regulatory
limitations as
outlined
above.
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, to meet its obligations
under the contract. These assets may consist of cash, cash equivalents, liquid
debt, equity securities or other acceptable assets.
Other
Limitations
Subject to the
limitations outlined in the
“Government
Regulation of Derivatives,” 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.
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
A fund's investment
restrictions are subject to, and may be impacted and limited by, the federal
securities laws, rules and regulations, including the 1940 Act and Rule
18f-4 thereunder.
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
and 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
(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 the fund (not including
borrowings for temporary purposes in an amount not exceeding 5% of the value of
the 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. The Derivatives Rule
provides an exemption to enter into certain transactions deemed to be senior
securities subject to compliance with
the limitations outlined in
“Government Regulation
of Derivatives.”
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
fund 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, International Growth
Fund,
Mid Cap Growth Fund, and U.S. Growth Fund is subject to change only upon
at least
60 days’
prior written 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, 2023 and March 31,
2022 were as follows:
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Disciplined
Value Mid Cap Fund |
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Diversified
Real Assets Fund |
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Fundamental
Equity Income Fund1 |
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Global
Shareholder Yield Fund |
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International
Growth Fund |
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1
The fund commenced
operations on June 28, 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.
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, 2023, the “John
Hancock
Fund Complex” consisted of 186 funds (including
separate series of series mutual funds). Each Trustee has been elected to
serve on the Board. Each of
William H. Cunningham, Grace K. Fey, Deborah C. Jackson,
Hassell H. McClellan, Steven R. Pruchansky, and Gregory A. Russo was most
recently
elected to serve on the Board at a shareholder meeting held on November 15,
2012. Each of Andrew
G.
Arnott,
James R.
Boyle,
Noni
L.
Ellison, Dean C.
Garfield, Patricia
Lizarraga,
Paul
Lorentz,
and
Frances G. Rathke was most recently elected to serve on the Board at a
shareholder meeting held on
September 9, 2022. The address of each
Trustee and officer of the Trusts is 200 Berkeley Street, Boston, Massachusetts
02116.
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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 |
|
|
|
|
Trustee,
each Trust
(since
2017) |
Global
Head of Retail for Manulife (since 2022); Head of Wealth and
Asset
Management, United States and Europe, for John Hancock and
Manulife
(2018-2023); Director and Chairman, John Hancock
Investment
Management LLC (since 2005, including prior positions);
Director
and Chairman, John Hancock Variable Trust Advisers LLC
(since
2006, including prior positions); Director and Chairman, John
Hancock
Investment Management Distributors LLC (since 2004,
including
prior positions); President of various trusts within the John
Hancock
Fund Complex (2007-2023, including prior positions).
Trustee
of various trusts within the John Hancock Fund Complex (since
2017). |
|
|
Trustee,
each Trust
(since
2022) |
Global
Head, Manulife Wealth and Asset Management (since 2017);
General
Manager, Manulife, Individual Wealth Management and
Insurance
(2013–2017); President, Manulife Investments
(2010–2016).
Trustee
of various trusts within the John Hancock Fund Complex (since
2022). |
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1
Because each
Trust
is not required to and 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.
|
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 |
|
|
|
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Trustee,
each Trust
(2005–2010,
2012–2014,
and
since
2015) |
Board
Member, United of Omaha Life Insurance Company (since
2022).
Board Member, Mutual of Omaha Investor Services, Inc.
(since
2022). 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). |
|
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). |
|
|
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 |
|
|
|
|
Trustee,
each Trust
(since
2022) |
Senior
Vice President, General Counsel & Corporate Secretary,
Tractor
Supply Company (rural lifestyle retailer) (since 2021);
General
Counsel, Chief Compliance Officer & Corporate
Secretary,
Carestream Dental, L.L.C. (2017–2021); Associate
General
Counsel & Assistant Corporate Secretary, W.W. Grainger,
Inc.
(global industrial supplier) (2015–2017); Board Member,
Goodwill
of North Georgia, 2018 (FY2019)–2020 (FY2021);
Board
Member, Howard University School of Law Board of Visitors
(since
2021); Board Member, University of Chicago Law School
Board
of Visitors (since 2016); Board member, Children’s
Healthcare
of Atlanta Foundation Board (2021–present).
Trustee
of various trusts within the John Hancock Fund Complex
(since
2022). |
|
|
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). |
|
|
Trustee,
each Trust
(since
2022) |
Vice
President, Netflix, Inc. (since 2019); President & Chief
Executive
Officer, Information Technology Industry Council
(2009–2019);
NYU School of Law Board of Trustees (since
2021);
Member, U.S. Department of Transportation, Advisory
Committee
on Automation (since 2021); President of the
United
States Trade Advisory Council (2010–2018); Board
Member,
College for Every Student (2017–2021); Board
Member,
The Seed School of Washington, D.C. (2012–2017).
Trustee
of various trusts within the John Hancock Fund Complex
(since
2022). |
|
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). |
|
Patricia
Lizarraga
(1966) |
Trustee,
each Trust
(since
2022) |
Founder,
Chief Executive Officer, Hypatia Capital Group (advisory
and
asset management company) (since 2007); Independent
Director,
Audit Committee Chair, and Risk Committee Member,
Credicorp,
Ltd. (since 2017); Independent Director, Audit
Committee
Chair, Banco De Credito Del Peru (since 2017);
Trustee,
Museum of Art of Lima (since 2009).
Trustee
of various trusts within the John Hancock Fund Complex
(since
2022). |
|
|
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 |
|
|
|
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. |
|
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. |
|
|
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). |
|
|
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). |
|
1
Because each
Trust
is not required to and 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.
|
Current
Position(s)
with
the Trusts1 |
Principal
Occupation(s) During the Past 5 Years |
Kristie
M. Feinberg
(1975) |
|
Head
of Wealth & Asset Management, U.S. and Europe, for John Hancock and
Manulife
(since
2023); CFO and Global Head of Strategy, Manulife Investment Management
(2021–2023,
including prior positions); CFO Americas & Global Head of Treasury,
Invesco,
Ltd.,
Invesco US (2019–2020, including prior positions); Senior Vice President,
Corporate
Treasurer
and Business Controller, OppenheimerFunds (2001–2019, including prior
positions);
President of various trusts within the John Hancock Fund Complex (since
2023). |
|
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) |
|
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). |
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). |
|
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.
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.
Noni
L. Ellison –
As a senior vice
president, general counsel, and corporate secretary with over 25 years of
executive leadership experience, Ms. Ellison has extensive
management and business expertise in legal, regulatory, compliance, operational,
quality assurance, international, finance and governance
matters.
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.
Dean
C. Garfield –
As a former president
and chief executive officer of a leading industry organization and current
vice-president of a leading international
company, Mr. Garfield has significant global executive operational, governance,
regulatory, and leadership experience. He also has experience as a
leader overseeing and implementing global public policy matters including
strategic initiatives.
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.
Patricia
Lizarraga –
Through her current
positions as an independent board director, audit committee chair, and chief
executive officer of an investment advisory firm, Ms.
Lizarraga has expertise in financial services and investment matters, and
operational and risk oversight. As former governance committee chair, Ms.
Lizarraga has a strong understanding of corporate governance and the regulatory
frameworks of the investment management industry.
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 Global Head of Retail
for Manulife; Director and
Chairman of John Hancock
Investment Management LLC and John Hancock
Variable Trust Advisers LLC; Director and
Chairman
of John Hancock Investment Management Distributors LLC; and Trustee 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.
Paul
Lorentz
–
Through his position as the
Global Head of Manulife Wealth and Asset Management, Mr.
Lorentz
has
experience with retirement, retail
and
asset management solutions offered by Manulife
worldwide, enabling him 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, 2023.
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 Messrs.
Arnott,
Boyle,
and
Lorentz 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 (Mr. Cunningham and
Mses. Lizarraga and
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.
Ms.
Rathke has been designated by the Board as an “audit committee financial
expert,” as defined in SEC rules. This Committee met
four times during the
fiscal year ended March 31, 2023.
Compliance
Committee.
The Board also has a
standing Compliance Committee (Ms. Fey,
Mr.
Garfield and Ms. 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, 2023.
Contracts,
Legal & Risk Committee.
The Board also has a
standing Contracts, Legal & Risk Committee (Mr. Boyle, Ms.
Ellison,
and Messrs. 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, 2023.
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, 2023.
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, 2023.
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 Advisor's Pricing Committee (composed
of officers of the Advisor), which calculates
fair value determinations pursuant to procedures established by the
Advisor and 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 $285,000, 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 $205,000. 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 $20,000 retainer.
The following table
provides information regarding the compensation paid by each Trust and the other
investment companies in the John Hancock Fund Complex to the
Independent Trustees for their services during the fiscal year ended March 31,
2023.
Compensation
Table1
|
Total
Compensation
from
JHF III ($) |
Total
Compensation from
Current
Interest ($) |
Total
Compensation from
Investment
Trust ($) |
Total
Compensation
from
the Trusts and the John
Hancock
Fund
Complex
($)2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Compensation
from
JHF III ($) |
Total
Compensation from
Current
Interest ($) |
Total
Compensation from
Investment
Trust ($) |
Total
Compensation
from
the Trusts and the John
Hancock
Fund
Complex
($)2 |
|
|
|
|
|
|
|
|
|
|
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1
The Trust does not
have a pension or retirement plan for any of its Trustees or
officers.
2
There were
approximately 186 series in the John
Hancock Fund Complex as of March 31, 2023.
3
Mr. Burgess retired as Trustee
effective as of December 31, 2022.
4
Elected
to
serve as
Trustee effective as of September
9, 2022.
5
Ms. Harrison retired
as Trustee as of May 1, 2023.
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, 2022. 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.
|
|
Disciplined
Value
Mid
Cap Fund |
Fundamental
Equity
Income1 |
Diversified
Real
Assets
Fund |
Global
Shareholder
Yield
Fund |
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International
Growth
Fund |
|
|
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Total
– John
Hancock
Fund
Complex |
|
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|
|
|
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|
|
International
Growth
Fund |
|
|
|
Total
– John
Hancock
Fund
Complex |
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1
The fund commenced
operations on June 28, 2022.
2
Elected to serve as
Trustee effective as of September 9, 2022.
Shareholders
of The FUNDS
As of July
3, 2023, 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 3, 2023, 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 3, 2023, 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.
|
|
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|
EDWARD
D JONES & CO
FOR
THE BENEFIT OF CUSTOMERS
12555
MANCHESTER ROAD
SAINT
LOUIS MO 63131-3710 |
|
|
|
|
MLPF&S
FOR THE
SOLE
BENEFIT OF ITS CUSTOMERS
ATTN:
FUND ADMINISTRATION
4800
DEER LAKE DRIVE EAST 2ND FL
JACKSONVILLE
FL 32246-6484 |
|
|
|
|
NATIONAL
FINANCIAL SERVICES LLC
FEBO
CUSTOMERS
MUTUAL
FUNDS
200
LIBERTY ST # 1WFC
NEW
YORK NY 10281-1015 |
|
|
|
|
|
|
|
|
|
CHARLES
SCHWAB & CO INC
SPECIAL
CUSTODY ACCOUNT FOR
BENE
OF CUST
ATTN
MUTUAL FUNDS
101
MONTGOMERY ST
SAN
FRANCISCO CA 94104-4151 |
|
|
|
|
PERSHING
LLC
1
PERSHING PLZ
JERSEY
CITY NJ 07399-0001 |
|
|
|
|
LPL
FINANCIAL
OMNIBUS
CUSTOMER ACCOUNT
ATTN:
MUTUAL FUND TRADING
4707
EXECUTIVE DRIVE
SAN
DIEGO CA 92121-3091 |
|
|
|
|
RAYMOND
JAMES
OMNIBUS
FOR MUTUAL FUNDS
HOUSE
ACCT FIRM
880
CARILLON PKWY
ST
PETERSBURG FL 33716-1100 |
|
|
|
|
MORGAN
STANLEY SMITH BARNEY LLC
FOR
EXCLUSIVE BENEFIT OF CUSTOMERS
1
NEW YORK PLAZA FL. 12
NEW
YORK NY 10004-1965 |
|
|
|
|
AMERICAN
ENTERPRISE INVESTMENT SVC
707
2ND AVE S
MINNEAPOLIS
MN 55402-240 |
|
|
|
|
NATIONAL
FINANCIAL SERVICES LLC
FEBO
CUSTOMERS
MUTUAL
FUNDS
200
LIBERTY ST # 1WFC
NEW
YORK NY 10281-1015 |
|
|
|
|
WELLS
FARGO CLEARING SERVICES, LLC
SPECIAL
CUSTODY ACCT FOR THE
EXCLUSIVE
BENEFIT OF CUSTOMER
2801
MARKET ST
SAINT
LOUIS MO 63103-2523 |
|
|
|
|
STIFEL
NICOLAUS & CO INC
EXCLUSIVE
BENEFIT OF CUSTOMERS
501
N BROADWAY
SAINT
LOUIS MO 63102-2188 |
|
|
|
|
EDWARD
D JONES & CO
FOR
THE BENEFIT OF CUSTOMERS
12555
MANCHESTER ROAD
SAINT
LOUIS MO 63131-3710 |
|
|
|
|
MLPF&S
FOR THE
SOLE
BENEFIT OF ITS CUSTOMERS
ATTN:
FUND ADMINISTRATION
4800
DEER LAKE DRIVE EAST 2ND FL
JACKSONVILLE
FL 32246-6484 |
|
|
|
|
NATIONAL
FINANCIAL SERVICES LLC
FEBO
CUSTOMERS
MUTUAL
FUNDS
200
LIBERTY ST # 1WFC
NEW
YORK NY 10281-1015 |
|
|
|
|
|
|
|
|
|
MLPF&S
FOR THE
SOLE
BENEFIT OF ITS CUSTOMERS
ATTN:
FUND ADMINISTRATION
4800
DEER LAKE DRIVE EAST 2ND FL
JACKSONVILLE
FL 32246-6484 |
|
|
|
|
LPL
FINANCIAL
OMNIBUS
CUSTOMER ACCOUNT
ATTN:
MUTUAL FUND TRADING
4707
EXECUTIVE DRIVE
SAN
DIEGO CA 92121-3091 |
|
|
|
|
AMERICAN
ENTERPRISE INVESTMENT SVC
707
2ND AVE S
MINNEAPOLIS
MN 55402-2405 |
|
|
|
|
PERSHING
LLC
1
PERSHING PLZ
JERSEY
CITY NJ 07399-0001 |
|
|
|
|
MLPF&S
FOR THE
SOLE
BENEFIT OF ITS CUSTOMERS
ATTN:
FUND ADMINISTRATION
4800
DEER LAKE DRIVE EAST 2ND FL
JACKSONVILLE
FL 32246-6484 |
|
|
|
|
JOHN
HANCOCK TRUST COMPANY
200
BERKELEY ST STE 7
BOSTON
MA 02116-5038 |
|
|
|
|
DCGT
AS TTEE AND/OR CUST
FBO
PLIC VARIOUS RETIREMENT PLANS
OMNIBUS
ATTN
NPIO TRADE DESK
711
HIGH ST
DES
MOINES IA 50392-0001 |
|
|
|
|
NATIONAL
FINANCIAL SERVICES LLC
499
WASHINGTON BLVD
JERSEY
CITY NJ 07310-1995 |
|
|
|
|
SAMMONS
FINANCIAL NETWORK LLC
8300
MILLS CIVIC PKWY
WDM
IA 50266-3833 |
|
|
|
|
MATRIX
TRUST COMPANY AS AGENT FOR
NEWPORT
TRUST COMPANY
MISSISSIPPI
METHODIST HOSPITAL &
REHAB
CENTER RETIREMENT PLAN
35
IRON POINT CIR
FOLSOM
CA 95630-8587 |
|
|
|
|
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 |
|
|
|
|
ING
NATIONAL TRUST
GORDON
ELROD
1
ORANGE WAY
WINDSOR
CT 06095-4773 |
|
|
|
|
|
|
|
|
|
NATIONAL
FINANCIAL SERVICES LLC
499
WASHINGTON BLVD
JERSEY
CITY NJ 07310-1995 |
|
|
|
|
MINNESOTA
LIFE INSURANCE COMPANY
400
ROBERT ST N STE A
SAINT
PAUL MN 55101-2099 |
|
|
|
|
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 |
|
|
|
|
DCGT
AS TTEE AND/OR CUST
FBO
PLIC VARIOUS RETIREMENT PLANS
OMNIBUS
ATTN
NPIO TRADE DESK
711
HIGH ST
DES
MOINES IA 50392-0001 |
|
|
|
|
CHARLES
SCHWAB & CO INC
MUTUAL
FUNDS DEPT
101
MONTGOMERY ST
SAN
FRANCISCO CA 94104-4151 |
|
|
|
|
NATIONAL
FINANCIAL SERVICES LLC
499
WASHINGTON BLVD
JERSEY
CITY NJ 07310-1995 |
|
|
|
|
EDWARD
D JONES & CO
FOR
THE BENEFIT OF CUSTOMERS
12555
MANCHESTER ROAD
SAINT
LOUIS MO 63131-3710 |
|
|
|
|
JOHN
HANCOCK LIFE INSURANCE
COMPANY
(USA)
ATTN:
JHRPS TRADING OPS ST6
200
BERKELEY ST
BOSTON
MA 02116-5022 |
|
|
|
|
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 |
|
|
|
|
JHF
II MULTIMANAGER LIFESTYLE GROWTH
PORTFOLIO
200
BERKLEY STREET
BOSTON
MA 02116-5030 |
|
|
|
|
JHF
II MULTIMANAGER LIFESTYLE BALANCED
PORTFOLIO
200
BERKLEY STREET
BOSTON
MA 02116-5030 |
|
|
|
|
JHF
II MULTIMANAGER LIFESTYLE AGGRESSIVE
PORTFOLIO
200
BERKLEY STREET
BOSTON
MA 02116-5030 |
|
|
|
|
|
|
|
DISCIPLINED
VALUE
MID
CAP FUND |
|
EDWARD
D JONES & CO
FOR
THE BENEFIT OF CUSTOMERS
12555
MANCHESTER ROAD
SAINT
LOUIS MO 63131-3710 |
|
|
DISCIPLINED
VALUE
MID
CAP FUND |
|
MLPF&S
FOR THE
SOLE
BENEFIT OF ITS CUSTOMERS
ATTN:
FUND ADMINISTRATION
4800
DEER LAKE DRIVE EAST 2ND FL
JACKSONVILLE
FL 32246-6484 |
|
|
DISCIPLINED
VALUE
MID
CAP FUND |
|
NATIONAL
FINANCIAL SERVICES LLC
FEBO
CUSTOMERS
MUTUAL
FUNDS
200
LIBERTY ST # 1WFC
NEW
YORK NY 10281-1015 |
|
|
DISCIPLINED
VALUE
MID
CAP FUND |
|
CHARLES
SCHWAB & CO INC
SPECIAL
CUSTODY ACCOUNT FOR
BENE
OF CUST
ATTN
MUTUAL FUNDS
101
MONTGOMERY ST
SAN
FRANCISCO CA 94104-4151 |
|
|
DISCIPLINED
VALUE
MID
CAP FUND |
|
PERSHING
LLC
1
PERSHING PLZ
JERSEY
CITY NJ 07399-0001 |
|
|
DISCIPLINED
VALUE
MID
CAP FUND |
|
RAYMOND
JAMES
OMNIBUS
FOR MUTUAL FUNDS
HOUSE
ACCT FIRM
880
CARILLON PKWY
ST
PETERSBURG FL 33716-1100 |
|
|
DISCIPLINED
VALUE
MID
CAP FUND |
|
WELLS
FARGO CLEARING SERVICES, LLC
SPECIAL
CUSTODY ACCT FOR THE
EXCLUSIVE
BENEFIT OF CUSTOMER
2801
MARKET ST
SAINT
LOUIS MO 63103-2523 |
|
|
DISCIPLINED
VALUE
MID
CAP FUND |
|
MORGAN
STANLEY SMITH BARNEY LLC
FOR
EXCLUSIVE BENEFIT OF CUSTOMERS
1
NEW YORK PLAZA FL. 12
NEW
YORK NY 10004-1965 |
|
|
DISCIPLINED
VALUE
MID
CAP FUND |
|
LPL
FINANCIAL
OMNIBUS
CUSTOMER ACCOUNT
ATTN:
MUTUAL FUND TRADING
4707
EXECUTIVE DRIVE
SAN
DIEGO CA 92121-3091 |
|
|
DISCIPLINED
VALUE
MID
CAP FUND |
|
AMERICAN
ENTERPRISE INVESTMENT SVC
707
2ND AVE S
MINNEAPOLIS
MN 55402-2405 |
|
|
DISCIPLINED
VALUE
MID
CAP FUND |
|
STIFEL
NICOLAUS & CO INC
EXCLUSIVE
BENEFIT OF CUSTOMERS
501
N BROADWAY
SAINT
LOUIS MO 63102-2188 |
|
|
DISCIPLINED
VALUE
MID
CAP FUND |
|
NATIONAL
FINANCIAL SERVICES LLC
FEBO
CUSTOMERS
MUTUAL
FUNDS
200
LIBERTY ST # 1WFC
NEW
YORK NY 10281-1015 |
|
|
|
|
|
|
|
DISCIPLINED
VALUE
MID
CAP FUND |
|
MLPF&S
FOR THE
SOLE
BENEFIT OF ITS CUSTOMERS
ATTN:
FUND ADMINISTRATION
4800
DEER LAKE DRIVE EAST 2ND FL
JACKSONVILLE
FL 32246-6484 |
|
|
DISCIPLINED
VALUE
MID
CAP FUND |
|
LPL
FINANCIAL
OMNIBUS
CUSTOMER ACCOUNT
ATTN:
MUTUAL FUND TRADING
4707
EXECUTIVE DRIVE
SAN
DIEGO CA 92121-3091 |
|
|
DISCIPLINED
VALUE
MID
CAP FUND |
|
WELLS
FARGO CLEARING SERVICES, LLC
SPECIAL
CUSTODY ACCT FOR THE
EXCLUSIVE
BENEFIT OF CUSTOMER
2801
MARKET ST
SAINT
LOUIS MO 63103-2523 |
|
|
DISCIPLINED
VALUE
MID
CAP FUND |
|
NATIONAL
FINANCIAL SERVICES LLC
FEBO
CUSTOMERS
MUTUAL
FUNDS
200
LIBERTY ST # 1WFC
NEW
YORK NY 10281-1015 |
|
|
DISCIPLINED
VALUE
MID
CAP FUND |
|
PERSHING
LLC
1
PERSHING PLZ
JERSEY
CITY NJ 07399-0001 |
|
|
DISCIPLINED
VALUE
MID
CAP FUND |
|
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 |
|
|
DISCIPLINED
VALUE
MID
CAP FUND |
|
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, 1ST FLOOR
LINTHICUM
MD 21090-2917 |
|
|
DISCIPLINED
VALUE
MID
CAP FUND |
|
MLPF&S
FOR THE
SOLE
BENEFIT OF ITS CUSTOMERS
ATTN:
FUND ADMINISTRATION
4800
DEER LAKE DRIVE EAST 2ND FL
JACKSONVILLE
FL 32246-6484 |
|
|
DISCIPLINED
VALUE
MID
CAP FUND |
|
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 |
|
|
DISCIPLINED
VALUE
MID
CAP FUND |
|
EMPOWER
TRUST FBO
RECORDKEEPING
FOR LARGE BENEFIT PL
8525
E ORCHARD RD
GREENWOOD
VLG CO 80111-5002 |
|
|
DISCIPLINED
VALUE
MID
CAP FUND |
|
NATIONAL
FINANCIAL SERVICES LLC
499
WASHINGTON BLVD
JERSEY
CITY NJ 07310-1995 |
|
|
|
|
|
|
|
DISCIPLINED
VALUE
MID
CAP FUND |
|
NATIONAL
FINANCIAL SERVICES LLC
499
WASHINGTON BLVD
JERSEY
CITY NJ 07310-1995 |
|
|
DISCIPLINED
VALUE
MID
CAP FUND |
|
LINCOLN
RETIREMENT SERVICES COMPANY
FBO
PRINCE WILLIAM 403B
PO
BOX 7876
FORT
WAYNE IN 46801-7876 |
|
|
DISCIPLINED
VALUE
MID
CAP FUND |
|
NATIONAL
FINANCIAL SERVICES LLC
499
WASHINGTON BLVD
JERSEY
CITY NJ 07310-1995 |
|
|
DISCIPLINED
VALUE
MID
CAP FUND |
|
EDWARD
D JONES & CO
FOR
THE BENEFIT OF CUSTOMERS
12555
MANCHESTER ROAD
SAINT
LOUIS MO 63131-3710 |
|
|
DISCIPLINED
VALUE
MID
CAP FUND |
|
MLPF&S
INC
FOR
THE BENEFIT OF OUR CUSTOMERS
4800
DEER LAKE DR E
JACKSONVILLE
FL 32246-6486 |
|
|
DISCIPLINED
VALUE
MID
CAP FUND |
|
CHARLES
SCHWAB & CO INC
MUTUAL
FUNDS DEPT
101
MONTGOMERY ST
SAN
FRANCISCO CA 94104-4151 |
|
|
|
|
JHF
II MULTIMANAGER LIFESTYLE GROWTH
PORTFOLIO
200
BERKLEY STREET
BOSTON
MA 02116-5030 |
|
|
|
|
JHF
II MULTIMANAGER LIFESTYLE BALANCED
PORTFOLIO
200
BERKLEY STREET
BOSTON
MA 02116-5030 |
|
|
|
|
JHF
II MULTIMANAGER LIFESTYLE AGGRESSIVE
PORTFOLIO
200
BERKLEY STREET
BOSTON
MA 02116-5030 |
|
|
|
|
JHF
II MULTIMANAGER 2025 LIFETIME
PORTFOLIO
200
BERKLEY STREET
BOSTON
MA 02116-5030 |
|
|
|
|
JHF
II MULTIMANAGER 2030 LIFETIME
PORTFOLIO
200
BERKLEY STREET
BOSTON
MA 02116-5030 |
|
|
FUNDAMENTAL
EQUITY
INCOME
FUND |
|
MANULIFE
REINSURANCE (BERMUDA) LTD
200
BERKELEY ST
BOSTON
MA 02116-5022 |
|
|
FUNDAMENTAL
EQUITY
INCOME
FUND |
|
MANULIFE
ASSET MANAGEMENT (US) LLC
2022
MANULIFE INVESTMENT MANAGEMENT
BUCK
PLAN
197
CLARENDON ST
BOSTON
MA 02116-5010 |
|
|
|
|
|
|
|
GLOBAL
SHAREHOLDER
YIELD
FUND |
|
EDWARD
D JONES & CO
FOR
THE BENEFIT OF CUSTOMERS
12555
MANCHESTER ROAD
SAINT
LOUIS MO 63131-3710 |
|
|
GLOBAL
SHAREHOLDER
YIELD
FUND |
|
WELLS
FARGO CLEARING SERVICES, LLC
SPECIAL
CUSTODY ACCT FOR THE
EXCLUSIVE
BENEFIT OF CUSTOMER
2801
MARKET ST
SAINT
LOUIS MO 63103-2523 |
|
|
GLOBAL
SHAREHOLDER
YIELD
FUND |
|
PERSHING
LLC
1
PERSHING PLZ
JERSEY
CITY NJ 07399-0001 |
|
|
GLOBAL
SHAREHOLDER
YIELD
FUND |
|
EDWARD
D JONES & CO
FOR
THE BENEFIT OF CUSTOMERS
12555
MANCHESTER ROAD
SAINT
LOUIS MO 63131-3710 |
|
|
GLOBAL
SHAREHOLDER
YIELD
FUND |
|
RAYMOND
JAMES
OMNIBUS
FOR MUTUAL FUNDS
HOUSE
ACCT FIRM
880
CARILLON PKWY
ST
PETERSBURG FL 33716-1100 |
|
|
GLOBAL
SHAREHOLDER
YIELD
FUND |
|
NATIONAL
FINANCIAL SERVICES LLC
FEBO
CUSTOMERS
MUTUAL
FUNDS
200
LIBERTY ST # 1WFC
NEW
YORK NY 10281-1015 |
|
|
GLOBAL
SHAREHOLDER
YIELD
FUND |
|
LPL
FINANCIAL
OMNIBUS
CUSTOMER ACCOUNT
ATTN:
MUTUAL FUND TRADING
4707
EXECUTIVE DRIVE
SAN
DIEGO CA 92121-3091 |
|
|
GLOBAL
SHAREHOLDER
YIELD
FUND |
|
WELLS
FARGO CLEARING SERVICES, LLC
SPECIAL
CUSTODY ACCT FOR THE
EXCLUSIVE
BENEFIT OF CUSTOMER
2801
MARKET ST
SAINT
LOUIS MO 63103-2523 |
|
|
GLOBAL
SHAREHOLDER
YIELD
FUND |
|
AMERICAN
ENTERPRISE INVESTMENT SVC
707
2ND AVE S
MINNEAPOLIS
MN 55402-2405 |
|
|
GLOBAL
SHAREHOLDER
YIELD
FUND |
|
MID
ATLANTIC TRUST COMPANY FBO
WILKINSON
MANUFACTURING INC
401(K)
PROFIT SHARING PLAN & TRUST
1251
WATERFRONT PLACE, SUITE 525
PITTSBURGH
PA 15222-4228 |
|
|
GLOBAL
SHAREHOLDER
YIELD
FUND |
|
MATRIX
TRUST COMPANY CUST FBO
MULVANE
SCHOOL DIST USD 263 403(B)
717
17TH ST STE 1300
DENVER
CO 80202-3304 |
|
|
GLOBAL
SHAREHOLDER
YIELD
FUND |
|
NATIONAL
FINANCIAL SERVICES LLC
499
WASHINGTON BLVD
JERSEY
CITY NJ 07310-1995 |
|
|
|
|
|
|
|
GLOBAL
SHAREHOLDER
YIELD
FUND |
|
MATRIX
TRUST COMPANY AS AGENT FOR
ADVISOR
TRUST INC
PLYMOUTH-CANTON
COMM SCHOOLS 403(B)
717
17TH ST STE 1300
DENVER
CO 80202-3304 |
|
|
GLOBAL
SHAREHOLDER
YIELD
FUND |
|
EDWARD
D JONES & CO
FOR
THE BENEFIT OF CUSTOMERS
12555
MANCHESTER ROAD
SAINT
LOUIS MO 63131-3710 |
|
|
GLOBAL
SHAREHOLDER
YIELD
FUND |
|
JHF
II MULTIMANAGER LIFESTYLE BALANCED
PORTFOLIO
200
BERKLEY STREET
BOSTON
MA 02116-5030 |
|
|
GLOBAL
SHAREHOLDER
YIELD
FUND |
|
JHF
II MULTIMANAGER LIFESTYLE MODERATE
PORTFOLIO
200
BERKLEY STREET
BOSTON
MA 02116-5030 |
|
|
GLOBAL
SHAREHOLDER
YIELD
FUND |
|
JHF
II MULTIMANAGER LIFESTYLE
CONSERVATIVE
PORTFOLIO
200
BERKLEY STREET
BOSTON
MA 02116-5030 |
|
|
GLOBAL
SHAREHOLDER
YIELD
FUND |
|
JHF
II MULTIMANAGER 2020 LIFETIME
PORTFOLIO
200
BERKLEY STREET
BOSTON
MA 02116-5030
|
|
|
INTERNATIONAL
GROWTH
FUND |
|
EDWARD
D JONES & CO
FOR
THE BENEFIT OF CUSTOMERS
12555
MANCHESTER ROAD
SAINT
LOUIS MO 63131-3710 |
|
|
INTERNATIONAL
GROWTH
FUND |
|
CHARLES
SCHWAB & CO INC
MUTUAL
FUNDS DEPT
101
MONTGOMERY ST
SAN
FRANCISCO CA 94104-4151 |
|
|
INTERNATIONAL
GROWTH
FUND |
|
MORGAN
STANLEY SMITH BARNEY LLC
FOR
EXCLUSIVE BENEFIT OF CUSTOMERS
1
NEW YORK PLAZA FL. 12
NEW
YORK NY 10004-1965 |
|
|
INTERNATIONAL
GROWTH
FUND |
|
NATIONAL
FINANCIAL SERVICES LLC
FEBO
CUSTOMERS
MUTUAL
FUNDS
200
LIBERTY ST # 1WFC
NEW
YORK NY 10281-1015 |
|
|
INTERNATIONAL
GROWTH
FUND |
|
MORGAN
STANLEY SMITH BARNEY LLC
FOR
EXCLUSIVE BENEFIT OF CUSTOMERS
1
NEW YORK PLAZA FL. 12
NEW
YORK NY 10004-1965 |
|
|
INTERNATIONAL
GROWTH
FUND |
|
AMERICAN
ENTERPRISE INVESTMENT SVC
707
2ND AVE S
MINNEAPOLIS
MN 55402-2405 |
|
|
|
|
|
|
|
INTERNATIONAL
GROWTH
FUND |
|
RAYMOND
JAMES
OMNIBUS
FOR MUTUAL FUNDS
HOUSE
ACCT FIRM
880
CARILLON PKWY
ST
PETERSBURG FL 33716-1100 |
|
|
INTERNATIONAL
GROWTH
FUND |
|
WELLS
FARGO CLEARING SERVICES, LLC
SPECIAL
CUSTODY ACCT FOR THE
EXCLUSIVE
BENEFIT OF CUSTOMER
2801
MARKET ST
SAINT
LOUIS MO 63103-2523 |
|
|
INTERNATIONAL
GROWTH
FUND |
|
LPL
FINANCIAL
OMNIBUS
CUSTOMER ACCOUNT
ATTN:
MUTUAL FUND TRADING
4707
EXECUTIVE DRIVE
SAN
DIEGO CA 92121-3091 |
|
|
INTERNATIONAL
GROWTH
FUND |
|
NATIONAL
FINANCIAL SERVICES LLC
FEBO
CUSTOMERS
MUTUAL
FUNDS
200
LIBERTY ST # 1WFC
NEW
YORK NY 10281-1015 |
|
|
INTERNATIONAL
GROWTH
FUND |
|
PERSHING
LLC
1
PERSHING PLZ
JERSEY
CITY NJ 07399-0001 |
|
|
INTERNATIONAL
GROWTH
FUND |
|
SPECIAL
CUSTODY ACCOUNT FOR THE
EXCLUSIVE
BENEFIT OF CUSTOMERS OF
UBS
FINANCIAL SERVICES INC
1000
HARBOR BLVD
WEEHAWKEN
NJ 07086-6761 |
|
|
INTERNATIONAL
GROWTH
FUND |
|
NATIONAL
FINANCIAL SERVICES LLC
FEBO
CUSTOMERS
MUTUAL
FUNDS
200
LIBERTY ST # 1WFC
NEW
YORK NY 10281-1015 |
|
|
INTERNATIONAL
GROWTH
FUND |
|
MORGAN
STANLEY SMITH BARNEY LLC
FOR
EXCLUSIVE BENEFIT OF CUSTOMERS
1
NEW YORK PLAZA FL. 12
NEW
YORK NY 10004-1965 |
|
|
INTERNATIONAL
GROWTH
FUND |
|
RAYMOND
JAMES
OMNIBUS
FOR MUTUAL FUNDS
HOUSE
ACCT FIRM
880
CARILLON PKWY
ST
PETERSBURG FL 33716-1100 |
|
|
INTERNATIONAL
GROWTH
FUND |
|
AMERICAN
ENTERPRISE INVESTMENT SVC
707
2ND AVE S
MINNEAPOLIS
MN 55402-2405 |
|
|
INTERNATIONAL
GROWTH
FUND |
|
LPL
FINANCIAL
OMNIBUS
CUSTOMER ACCOUNT
ATTN:
MUTUAL FUND TRADING
4707
EXECUTIVE DRIVE
SAN
DIEGO CA 92121-3091 |
|
|
INTERNATIONAL
GROWTH
FUND |
|
CHARLES
SCHWAB & CO INC
MUTUAL
FUNDS DEPT
101
MONTGOMERY ST
SAN
FRANCISCO CA 94104-4151 |
|
|
|
|
|
|
|
INTERNATIONAL
GROWTH
FUND |
|
MLPF&S
FOR THE
SOLE
BENEFIT OF ITS CUSTOMERS
ATTN:
FUND ADMINISTRATION
4800
DEER LAKE DRIVE EAST 2ND FL
JACKSONVILLE
FL 32246-6484 |
|
|
INTERNATIONAL
GROWTH
FUND |
|
DCGT
AS TTEE AND/OR CUST
FBO
PLIC VARIOUS RETIREMENT PLANS
ATTN
NPIO TRADE DESK
OMNIBUS
711
HIGH ST
DES
MOINES IA 50392-0001 |
|
|
INTERNATIONAL
GROWTH
FUND |
|
MLPF&S
FOR THE
SOLE
BENEFIT OF ITS CUSTOMERS
ATTN:
FUND ADMINISTRATION
4800
DEER LAKE DRIVE EAST 2ND FL
JACKSONVILLE
FL 32246-6484 |
|
|
INTERNATIONAL
GROWTH
FUND |
|
NATIONAL
FINANCIAL SERVICES LLC
499
WASHINGTON BLVD
JERSEY
CITY NJ 07310-1995 |
|
|
INTERNATIONAL
GROWTH
FUND |
|
STATE
STREET BANK AND TRUST AS
TRUSTEE
AND OR CUSTODIAN FBO ADP
ACCESS
PRODUCT
1
LINCOLN ST
BOSTON
MA 02111-2901 |
|
|
INTERNATIONAL
GROWTH
FUND |
|
MATRIX
TRUST COMPANY CUST FBO
MIAMI
VALLEY EMERGENCY SPECIAL
717
17TH ST STE 1300
DENVER
CO 80202-3304 |
|
|
INTERNATIONAL
GROWTH
FUND |
|
RELIANCE
TRUST CO TTEE
ADP
ACCESS LARGE MARKET 401K
201
17TH ST NW STE 1000
ATLANTA
GA 30363-1195 |
|
|
INTERNATIONAL
GROWTH
FUND |
|
DCGT
AS TTEE AND/OR CUST
FBO
PLIC VARIOUS RETIREMENT PLANS
ATTN
NPIO TRADE DESK
OMNIBUS
711
HIGH ST
DES
MOINES IA 50392-0001 |
|
|
INTERNATIONAL
GROWTH
FUND |
|
JOHN
HANCOCK TRUST COMPANY LLC
200
BERKELEY ST STE 7
BOSTON
MA 02116-5038 |
|
|
INTERNATIONAL
GROWTH
FUND |
|
NATIONAL
FINANCIAL SERVICES LLC
499
WASHINGTON BLVD
JERSEY
CITY NJ 07310-1995 |
|
|
INTERNATIONAL
GROWTH
FUND |
|
EDWARD
D JONES & CO
FOR
THE BENEFIT OF CUSTOMERS
12555
MANCHESTER ROAD
SAINT
LOUIS MO 63131-3710 |
|
|
INTERNATIONAL
GROWTH
FUND |
|
MATRIX
TRUST COMPANY AS AGENT FOR
NEWPORT
TRUST COMPANY
WEA
TAX SHELTERED ANNUITY TRUST
35
IRON POINT CIR STE 300
FOLSOM
CA 95630-8589 |
|
|
|
|
|
|
|
INTERNATIONAL
GROWTH
FUND |
|
T
ROWE PRICE SERVICES INC
ALASKA
COLLEGE SAVINGS TRUST
PORTFOLIO
2029-2032
100
E PRATT ST FL 7
BALTIMORE
MD 21202-1013 |
|
|
INTERNATIONAL
GROWTH
FUND |
|
T
ROWE PRICE SERVICES INC
ALASKA
COLLEGE SAVINGS TRUST
PORTFOLIO
2025-2028
100
E PRATT ST FL 7
BALTIMORE
MD 21202-1013 |
|
|
INTERNATIONAL
GROWTH
FUND |
|
JHF
II MULTIMANAGER LIFESTYLE GROWTH
PORTFOLIO
200
BERKLEY STREET
BOSTON
MA 02116-5030 |
|
|
INTERNATIONAL
GROWTH
FUND |
|
JHF
II MULTIMANAGER LIFESTYLE BALANCED
PORTFOLIO
200
BERKLEY STREET
BOSTON
MA 02116-5030 |
|
|
INTERNATIONAL
GROWTH
FUND |
|
JHF
II MULTIMANAGER LIFESTYLE AGGRESSIVE
PORTFOLIO
200
BERKLEY STREET
BOSTON
MA 02116-5030 |
|
|
INTERNATIONAL
GROWTH
FUND |
|
JHF
II MULTIMANAGER LIFESTYLE MODERATE
PORTFOLIO
200
BERKLEY STREET
BOSTON
MA 02116-5030 |
|
|
INTERNATIONAL
GROWTH
FUND |
|
JOHN
HANCOCK LIFE INSURANCE COMPANY
(U.S.A.)
201
TOWNSEND STREET, SUITE 900
LANSING
MI 48933 |
|
|
INTERNATIONAL
GROWTH
FUND |
|
JOHN
HANCOCK LIFE INSURANCE COMPANY OF
NEW
YORK
100
SUMMIT LAKE DRIVE, SECOND FLOOR
VALHALLA
NY 10595 |
|
|
|
|
JOHN
HANCOCK LIFE & HEALTH INS CO
CUSTODIAN
FOR THE IRA OF
JAMES
P DEAN
221
COLES HILL RD
WELLS
ME 04090-5712 |
|
|
|
|
LPL
FINANCIAL
OMNIBUS
CUSTOMER ACCOUNT
ATTN:
MUTUAL FUND TRADING
4707
EXECUTIVE DRIVE
SAN
DIEGO CA 92121-3091 |
|
|
|
|
MANULIFE
REINSURANCE (BERMUDA) LTD
200
BERKELEY ST
BOSTON
MA 02116-5022 |
|
|
|
|
JOHN
HANCOCK LIFE & HEALTH INS CO
ACCLIMATE
TECHNOLOGIES INC SIM IRA
FBO
CHRISTIAN PRINCE
7991
OLD WOODS CT
SPRINGBORO
OH 45066-9811 |
|
|
|
|
|
|
|
|
|
AMERICAN
ENTERPRISE INVESTMENT SVC
707
2ND AVE S
MINNEAPOLIS
MN 55402-2405 |
|
|
|
|
NATIONAL
FINANCIAL SERVICES LLC
FEBO
CUSTOMERS
MUTUAL
FUNDS
200
LIBERTY ST # 1WFC
NEW
YORK NY 10281-1015 |
|
|
|
|
PERSHING
LLC
1
PERSHING PLZ
JERSEY
CITY NJ 07399-0001 |
|
|
|
|
LPL
FINANCIAL
OMNIBUS
CUSTOMER ACCOUNT
ATTN:
MUTUAL FUND TRADING
4707
EXECUTIVE DRIVE
SAN
DIEGO CA 92121-3091 |
|
|
|
|
JOHN
HANCOCK LIFE INSURANCE
COMPANY
(USA)
ATTN:
JHRPS TRADING OPS ST6
200
BERKELEY ST
BOSTON
MA 02116-5022 |
|
|
|
|
JOHN
HANCOCK LIFE INSURANCE
COMPANY
OF NEW YORK
ATTN:
JHRPS TRADING OPS ST 6
200
BERKELEY ST
BOSTON
MA 02116-5022 |
|
|
|
|
JHF
II MULTIMANAGER LIFESTYLE GROWTH
PORTFOLIO
200
BERKLEY STREET
BOSTON
MA 02116-5030 |
|
|
|
|
JHF
II MULTIMANAGER LIFESTYLE BALANCED
PORTFOLIO
200
BERKLEY STREET
BOSTON
MA 02116-5030 |
|
|
|
|
JHF
II MULTIMANAGER LIFESTYLE AGGRESSIVE
PORTFOLIO
200
BERKLEY STREET
BOSTON
MA 02116-5030 |
|
|
|
|
EDWARD
D JONES & CO
FOR
THE BENEFIT OF CUSTOMERS
12555
MANCHESTER ROAD
SAINT
LOUIS MO 63131-3710 |
|
|
|
|
ASCENSUS
TRUST COMPANY FBO
FRANCIS
JAYAKUMAR
PO
BOX 10758
FARGO
ND 58106-0758 |
|
|
|
|
JOHN
HANCOCK LIFE & HEALTH INS CO
CUSTODIAN
FOR THE IRA OF
CHRISTOPHER
S DARBY
14101
DICKENS ST APT 6
SHERMAN
OAKS CA 91423-4258 |
|
|
|
|
|
|
|
|
|
NATIONAL
FINANCIAL SERVICES LLC
FEBO
CUSTOMERS
MUTUAL
FUNDS
200
LIBERTY ST # 1WFC
NEW
YORK NY 10281-1015 |
|
|
|
|
WELLS
FARGO CLEARING SERVICES, LLC
SPECIAL
CUSTODY ACCT FOR THE
EXCLUSIVE
BENEFIT OF CUSTOMER
2801
MARKET ST
SAINT
LOUIS MO 63103-2523 |
|
|
|
|
RAYMOND
JAMES
OMNIBUS
FOR MUTUAL FUNDS
HOUSE
ACCT FIRM
880
CARILLON PKWY
ST
PETERSBURG FL 33716-1100 |
|
|
|
|
ASCENSUS
TRUST COMPANY FBO
CORE
RETIREMENT PLAN
PO
BOX 10758
FARGO
ND 58106-0758 |
|
|
|
|
EDWARD
D JONES & CO
FOR
THE BENEFIT OF CUSTOMERS
12555
MANCHESTER ROAD
SAINT
LOUIS MO 63131-3710 |
|
|
|
|
NATIONAL
FINANCIAL SERVICES LLC
FEBO
CUSTOMERS
MUTUAL
FUNDS
200
LIBERTY ST # 1WFC
NEW
YORK NY 10281-1015 |
|
|
|
|
PERSHING
LLC
1
PERSHING PLZ
JERSEY
CITY NJ 07399-0001 |
|
|
|
|
AMERICAN
ENTERPRISE INVESTMENT SVC
707
2ND AVE S
MINNEAPOLIS
MN 55402-2405 |
|
|
|
|
NATIONAL
FINANCIAL SERVICES LLC
FEBO
CUSTOMERS
MUTUAL
FUNDS
200
LIBERTY ST # 1WFC
NEW
YORK NY 10281-1015 |
|
|
|
|
RAYMOND
JAMES
OMNIBUS
FOR MUTUAL FUNDS
HOUSE
ACCT FIRM
880
CARILLON PKWY
ST
PETERSBURG FL 33716-1100 |
|
|
|
|
WELLS
FARGO CLEARING SERVICES, LLC
SPECIAL
CUSTODY ACCT FOR THE
EXCLUSIVE
BENEFIT OF CUSTOMER
2801
MARKET ST
SAINT
LOUIS MO 63103-2523 |
|
|
|
|
AMERICAN
ENTERPRISE INVESTMENT SVC
707
2ND AVE S
MINNEAPOLIS
MN 55402-2405 |
|
|
|
|
|
|
|
|
|
NATIONAL
FINANCIAL SERVICES LLC
FEBO
CUSTOMERS
MUTUAL
FUNDS
200
LIBERTY ST # 1WFC
NEW
YORK NY 10281-1015 |
|
|
|
|
PERSHING
LLC
1
PERSHING PLZ
JERSEY
CITY NJ 07399-0001 |
|
|
|
|
LPL
FINANCIAL
OMNIBUS
CUSTOMER ACCOUNT
ATTN:
MUTUAL FUND TRADING
4707
EXECUTIVE DRIVE
SAN
DIEGO CA 92121-3091 |
|
|
|
|
CHARLES
SCHWAB & CO INC
MUTUAL
FUNDS DEPT
101
MONTGOMERY ST
SAN
FRANCISCO CA 94104-4151 |
|
|
|
|
ASCENSUS
TRUST COMPANY FBO
INLAND
PAPER COMPANY 401 K PLAN
PO
BOX 10758
FARGO
ND 58106-0758 |
|
|
|
|
ASCENSUS
TRUST COMPANY FBO
ILGENFRITZ
CONSULTING LLC RETIREMENT
PO
BOX 10758
FARGO
ND 58106-0758 |
|
|
|
|
LPL
FINANCIAL
OMNIBUS
CUSTOMER ACCOUNT
ATTN:
MUTUAL FUND TRADING
4707
EXECUTIVE DRIVE
SAN
DIEGO CA 92121-3091 |
|
|
|
|
ASCENSUS
TRUST COMPANY FBO
MURPHY
CONSULTING RETIREMENT PLAN
PO
BOX 10758
FARGO
ND 58106-0758 |
|
|
|
|
MG
TRUST COMPANY CUST FBO
BRONSON
COMMUNITY SCHOOLS 403 B
717
17TH ST STE 1300
DENVER
CO 80202-3304 |
|
|
|
|
ASCENSUS
TRUST COMPANY FBO
CAREY
LOHRENZ PORTRAITURE INC
PO
BOX 10758
FARGO
ND 58106-0758 |
|
|
|
|
ASCENSUS
TRUST COMPANY FBO
MAB
BUSINESS SERVICES RETIREMENT PL
PO
BOX 10758
FARGO
ND 58106-0758 |
|
|
|
|
MLPF&S
FOR THE
SOLE
BENEFIT OF ITS CUSTOMERS
ATTN:
FUND ADMINISTRATION
4800
DEER LAKE DRIVE EAST 2ND FL
JACKSONVILLE
FL 32246-6484 |
|
|
|
|
|
|
|
|
|
JOHN
HANCOCK INVESTMENT
MANAGEMENT
LLC
200
BERKELEY ST
BOSTON
MA 02116-5035 |
|
|
|
|
MG
TRUST COMPANY CUST FBO
NORTON
COMM SCH USD #211 403 B
717
17TH ST STE 1300
DENVER
CO 80202-3304 |
|
|
|
|
JOHN
HANCOCK LIFE INSURANCE
COMPANY
(USA)
ATTN:
JHRPS TRADING OPS ST6
200
BERKELEY ST
BOSTON
MA 02116-5022 |
|
|
|
|
EDWARD
D JONES & CO
FOR
THE BENEFIT OF CUSTOMERS
12555
MANCHESTER ROAD
SAINT
LOUIS MO 63131-3710 |
|
|
|
|
JOHN
HANCOCK LIFE INSURANCE COMPANY
(U.S.A.)
201
TOWNSEND STREET, SUITE 900
LANSING
MI 48933 |
|
|
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, 2023, March 31,
2022, and March 31,
2021.
|
Advisory
Fee Paid in Fiscal Year Ended March 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Disciplined
Value Mid Cap Fund |
|
|
|
|
|
|
|
|
|
|
|
|
Diversified
Real Assets Fund |
|
|
|
|
|
|
|
|
|
|
|
|
Fundamental
Equity Income3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global
Shareholder Yield Fund |
|
|
|
|
|
Advisory
Fee Paid in Fiscal Year Ended
March
31, |
|
|
|
|
|
|
|
|
|
|
|
|
International
Growth Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
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|
|
|
|
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
The fund commenced
operations on June 28,
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, 2023, March 31,
2022, and March 31,
2021.
|
Service
Fee Paid in Fiscal Year Ended March 31, |
|
|
|
|
|
|
|
|
Disciplined
Value Mid Cap Fund |
|
|
|
|
Service
Fee Paid in Fiscal Year Ended March 31, |
|
|
|
|
Diversified
Real Assets Fund |
|
|
|
Fundamental
Equity Income1 |
|
|
|
Global
Shareholder Yield Fund |
|
|
|
International
Growth Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
The fund commenced
operations on June 28, 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.
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
its 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 Subadvisory
Agreement 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, 2023, March 31,
2022, and March 31,
2021.
|
|
Fiscal
Period Ended March 31, |
|
|
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|
Disciplined
Value
Mid Cap
Fund |
|
|
|
|
|
|
|
|
|
|
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|
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|
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|
|
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|
|
|
|
|
Global
Shareholder
Yield
Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International
Growth
Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
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|
|
|
|
|
|
1
The fund commenced
operations on June 28, 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.
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.
|
|
Class
A (Global Shareholder Yield Fund and International Growth
Fund) |
|
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) |
|
|
|
|
|
|
|
|
|
|
|
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, 2024.
3
The Distributor has
contractually agreed to limit the Rule 12b-1 distribution and service fees for
Class R4 shares of Disciplined Value
Fund, Disciplined Value Mid Cap Fund, International
Growth Fund, and U.S. Growth Fund to 0.15% until July 31, 2024.
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 for Money Market Fund
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, 2023, the following
amounts were paid to the Distributor pursuant to each fund’s Rule 12b-1
Plans.
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Rule
12b-1 Service Fee
Payments
($) |
Rule
12b-1 Distribution Fee
Payments
($) |
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Disciplined
Value Mid Cap Fund |
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Fundamental
Equity Income Fund1 |
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Global
Shareholder Yield Fund |
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International
Growth Fund |
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1
The fund commenced
operations on June 28,
2022.
During the fiscal
period ended March 31, 2023, the following
unreimbursed expense amounts were incurred under the Class C reimbursement
Rule
12b-1 Plan for Money Market Fund:
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Unreimbursed
Expenses ($) |
Unreimbursed
Expenses as a Percent
of
the Share Class Net Assets (%) |
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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 in most
funds,
investments by certain retirement plans where a finder's fee
has been paid, and investments made in
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
up to
0.25% of
its average daily net (eligible) assets invested in
the fund. The term “(eligible) assets” used in
this context refers to shares held for more than
one year. 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
(eligible) 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 (eligible) assets, except that
the annual Rule 12b-1 distribution and service
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, 2024, 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,
2023, 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:
|
Advisor
Group-American Portfolios Financial Services,
Inc. |
Advisor
Group-FSC Securities Corporation |
Advisor
Group-Infinex Investments, Inc. |
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
- Financial Institutions |
Cetera
- Financial Specialists, Inc. |
|
Commonwealth
Financial Network |
Concourse
Financial Group Securities |
Crown
Capital Securities L.P. |
|
|
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 |
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Independent
Financial Group |
J.P.
Morgan Securities LLC |
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MML
Investor Services, Inc. |
Money
Concepts Capital Corp. |
Morgan
Stanley Wealth Management, LLC |
Northwestern
Mutual Investment Services, LLC |
Principal
Securities, Inc. |
Raymond
James and Associates, Inc. |
Raymond
James Financial Services, Inc. |
RBC
Capital Markets Corporation |
|
Stifel,
Nicolaus, & Co, Inc. |
|
The
Investment Center, Inc. |
Transamerica
Financial Advisors, Inc. |
UBS
Financial Services, Inc. |
Unionbanc
Investment Services |
|
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
Commission
(%)2 |
Selling
Firm Receives
Rule
12b-1 Service Fee
(%) |
Total
Selling Firm
Compensation
(%)3,4 |
Class
A investments (all funds except
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Class
A investments (Money Market
Fund) |
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Class
A investments of $1 million or
more
(all funds except Money Market
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Next
$1 or more above that |
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Class
C investments (all funds except
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Class
C investments (Money Market
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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 Rule
12b-1
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
Advisor's 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.
The Board has
designated the funds' advisor as the valuation designee to perform fair value
functions for each fund in accordance with the advisor's valuation policies
and procedures. As valuation designee, the advisor will determine the fair
value, in good faith, of securities and other assets held by each fund for which
market quotations are not readily available and, among other things, will assess
and manage material risks associated with fair value determinations,
select, apply and test fair value methodologies, and oversee and evaluate
pricing services and other valuation agents used in valuing a fund's
investments. The advisor is subject to Board oversight and reports to the Board
information regarding the fair valuation process and related material
matters. The advisor carries out its responsibilities as valuation designee
through its Pricing Committee.
Portfolio securities
are valued by various methods that are generally described below. Portfolio
securities also may be fair valued by the Advisor's
Pricing
Committee in certain instances pursuant to procedures established by the
Advisor
and adopted by the Board. 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
Board's valuation
designee, the
Advisor.
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 Advisor and adopted
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,
2023, 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 |
|
Abel
Noser (f.k.a. Trade Informatics), (f.k.a. SJ
Levinson) |
|
|
Messaging
application to be used for margins |
|
|
|
Portfolio
Analysis, Order Management, Pricing, 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, Commission Recapture, Transition Services |
|
|
|
|
|
|
|
Securities
Lending Analytics |
|
Financial
Reporting, Type Setting |
Donnelley
Financial Solutions |
|
|
|
Electra
Information Systems |
|
|
|
|
|
|
Risk
Management, Attribution, Portfolio Analysis tool,
Performance |
|
Foreign
Currency Trade Review |
|
FX
Trade Execution Analysis, Transactions |
|
|
|
|
|
|
Institutional
Shareholder Services (ISS) |
Class
Actions, Proxy Voting |
|
|
|
Citi
Fund Accounting SOC1 Auditor |
Law
Firm of Davis and Harman |
Development
of Revenue Ruling |
|
|
|
Service
Provider-Electronic Data Management, Operational
Functions |
|
Service
Provider-Valuation Oversight |
|
|
|
Liquidity
Risk Management, Performance, Analytics |
National
Financial Services |
|
|
Back
Office Service Provider |
|
Portfolio
reconciliation and exception management |
PricewaterhouseCoopers
LLP |
|
|
|
Russell
Implementation Services |
|
|
|
|
|
|
Code
of Ethics Monitoring |
|
Derivative
Broker, Service Provider-IBOR, Operational
Functions |
|
Securities
Lending Analytics |
|
Accounting,
Custody Messaging |
|
|
|
Audit
Services, Tax Reporting |
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.
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 by a group retirement
plan that continues to offer the same or another John Hancock mutual fund as an
investment to its
participants.
•
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.
|
401(a)
Plan
(401(k),
MPP,
PSP)
& 457 |
|
|
IRA,
SEP IRA &
Simple
IRA |
|
|
|
|
|
|
|
Over
70 1∕2
(or 72, in the
case
of individuals for
whom
the minimum
distribution
requirements
begin
at age 72) |
|
|
|
|
12%
of account
value
annually in
periodic
payments |
Between
59 1∕2
and 70 1∕2
(or
72, in the case of
individuals
for whom the
minimum
distribution
requirements
begin at age
72) |
|
|
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
59 1∕2
(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 |
|
|
|
|
|
|
|
|
|
|
|
|
Qualified
Domestic
Relations
Orders |
|
|
|
|
|
Termination
of Employment
Before
Normal Retirement
Age |
|
|
|
|
|
|
|
|
|
|
|
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,
Fundamental Equity
Income Fund, Mid Cap Growth 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 group retirement
plan,
whose
financial advisor has received finder’s fee compensation on the plan’s
investments, exchanges
all
its
Class A assets out
of a John Hancock fund
to a
non-John Hancock investment, a CDSC may
apply.
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 nine 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.
Each
Trust's
amended
and restated Declaration of
Trust:
(i) sets
forth
certain duties, responsibilities, and powers of the Trustees; (ii) clarifies that, other
than as
provided under federal securities laws, the shareholders may only bring actions
involving a fund derivatively; (iii) provides 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) clarifies 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 $1.00 per share
without any initial sales charges.
For
All Funds Except Money Market Fund
Class A shares are
sold with a maximum initial sales charge of 5.00%. Class C shares are sold at
NAV without any initial sales charges and with a 1.00% CDSC on shares
redeemed within 12 months of purchase. Class I, Class NAV, Class R2, Class R4,
Class R5, Class R6, and Class 1 shares of each fund, as applicable, are
sold at NAV without any initial sales charges or CDSCs. The following tables
show the maximum offering price per share of each class of each fund using
the fund's relevant NAV as of March 31, 2023.
|
NAV
and redemption
price
per Class A Share
($) |
Maximum
sales charge
(5.00%
of offering price)
($) |
Maximum
offering
price
to public
($) |
|
|
|
|
Disciplined
Value Mid Cap Fund |
|
|
|
|
|
|
|
Fundamental
Equity Income Fund1 |
|
|
|
Global
Shareholder Yield Fund |
|
|
|
International
Growth Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
The fund commenced
operations on June 28, 2022.
|
Net
Asset Value, Offering Price, and Redemption Price per Share
($) |
|
|
|
|
Disciplined
Value Mid Cap Fund |
|
|
|
Fundamental
Equity Income Fund1 |
|
Global
Shareholder Yield Fund |
|
International
Growth Fund |
|
|
|
|
|
|
|
1
The fund commenced
operations on June 28, 2022.
|
Net
Asset Value, Offering Price, and Redemption Price per
Share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Disciplined
Value Mid Cap Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fundamental
Equity Income Fund1 |
|
|
|
|
|
|
|
Global
Shareholder Yield Fund |
|
|
|
|
|
|
|
International
Growth Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
The fund commenced
operations on June 28,
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 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
fails 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 distributions to
individual shareholders
generally
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 and distributions to
corporate shareholders generally should be eligible for the DRD. 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.
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. Such foreign taxes
will
reduce
the amount a fund has available
to
distribute to shareholders.
Rather
than deducting these foreign taxes,
if a
fund invests more than 50% of its assets in the stock or securities
of foreign
corporations or foreign
governments at the end of its taxable year, the fund
may make
an election to treat a proportionate amount of eligible foreign taxes as
constituting a taxable distribution to each shareholder,
which
would,
subject
to
certain
limitations, generally allow the
shareholder
to
either
(i) credit that
proportionate amount of taxes against U.S. Federal income tax
liability as a foreign tax credit or
(ii)
to take
that amount as an itemized
deduction.
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 the shareholder
owns
fund shares for at least 61 days during the
121-day period beginning 60 days before the
fund's ex-dividend date (or 91 days during the
181-day period beginning
90 days
before the fund's ex-dividend date in the
case of certain preferred stock dividends paid by the fund), certain
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 reported 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.
Below are the capital
loss carryforwards available to the funds as of March 31,
2023
to the
extent provided by regulations,
to
offset future net realized capital
gains:
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|
Disciplined
Value Mid Cap Fund |
|
|
|
Diversified
Real Assets Fund |
|
|
|
Fundamental
Equity Income Fund |
|
|
|
Global
Shareholder Yield Fund |
|
|
|
International
Growth Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
In determining its
net capital gain, including in connection with determining the amount available
to support a capital gain dividend, its taxable income and its earnings and
profits, a fund generally may elect to treat part or all of any post-October
capital loss (defined as any net capital loss attributable to the portion, if any,
of the taxable year after October 31 or, if there is no such loss, the net
long-term capital loss or net short-term capital loss attributable to any
such portion of the taxable year) or late-year ordinary loss (generally, the sum
of its (i) net ordinary loss, if any, from the sale, exchange or other
taxable disposition of property, attributable to the portion, if any, of the
taxable year after October 31, and its (ii) other net ordinary loss, if any,
attributable to the portion, if any, of the taxable year after December 31) as
if incurred in the succeeding taxable year.
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
NAV 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 NAV 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 report 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 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 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, 2023. 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.
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The
Goldman Sachs Group, Inc. |
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Disciplined
Value Mid Cap Fund |
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|
Diversified
Real Assets Fund |
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The
Goldman Sachs Group, Inc. |
|
Fundamental
Equity Income Fund1 |
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Morgan
Stanley & Company, Inc. |
|
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The
Goldman Sachs Group, Inc. |
|
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|
Global
Shareholder Yield Fund |
|
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|
International
Growth Fund |
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The
Goldman Sachs Group, Inc. |
|
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Morgan
Stanley & Company, Inc. |
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1
The fund commenced
operations on June 28,
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, 2023, March 31,
2022, and March 31,
2021 are set forth in the
table below:
|
Total
Commissions Paid in Fiscal Period Ended March
31, |
|
|
|
|
|
|
|
|
Disciplined
Value Mid Cap |
|
|
|
Diversified
Real Assets Fund |
|
|
|
Fundamental
Equity Income Fund1 |
|
|
|
Global
Shareholder Yield Fund |
|
|
|
International
Growth Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
The fund commenced
operations on June 28, 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.
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, 2023, March 31,
2022, and March 31,
2021, 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
period ended August 31,
2021.
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, 2023, 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, 2023, 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, One Congress
Street,
Suite
1,
Boston, Massachusetts 02114, 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’.
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.
US
Municipal Short-Term Versus Long-Term Ratings |
|
|
DEMAND
OBLIGATIONS WITH
CONDITIONAL
LIQUIDITY
SUPPORT |
|
|
|
|
|
|
|
|
|
|
Ba1, Ba2, Ba3
B1,
B2, B3 Caa1,
Caa2,
Caa3 Ca,
C |
|
*
For SBPA-backed
VRDBs, the rating transitions are higher to allow for distance to downgrade to
below investment grade due to the presence of automatic termination events in the
SBPAs.
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.
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.
Appendix
B – Portfolio Manager Information
Boston
Partners Global Investors, Inc.
(“Boston
Partners”)
Disciplined
Value Fund
Disciplined
Value Mid Cap Fund
Portfolio
Managers
and Other Accounts Managed
The following table
shows the portfolio managers at the
subadvisor who are jointly and
primarily responsible for the day-to-day management of the stated funds’
portfolios.
|
|
|
David
T. Cohen, CFA, Mark E. Donovan, CFA, David J. Pyle, CFA, and Joshua
White,
CFA |
Disciplined
Value Mid Cap Fund |
Timothy
P. Collard, Joseph F. Feeney, Jr. CFA1
and Steven L. Pollack,
CFA |
1
Effective December
31, 2023, Joseph F. Feeney, Jr. will no longer serve as a portfolio manager of
the fund.
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
any
similarly managed
accounts.
The following table
provides information as of March 31, 2023:
|
Other
Registered Investment
Companies |
Other
Pooled Investment
Vehicles |
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
|
|
|
|
|
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 |
|
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|
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,
2023. 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.
|
Dollar
Range of Shares Owned |
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|
Disciplined
Value Mid Cap Fund2
|
|
|
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1
As of March 31,
2023, David T. Cohen,
Mark E. Donovan, David J. Pyle, and
Joshua White beneficially owned $100,001 - $500,000, over $1
million,
over $1
million, and $500,001 -
$1,000,000 of shares of the Fund, respectively.
2
As of March 31,
2023, Timothy P.
Collard,
Joseph F. Feeney, Jr. and Stephen L. Pollack beneficially owned $100,001 -
$500,000, $100,001 - $500,000, and over
$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, 2023:
|
Other
Registered Investment
Companies |
Other
Pooled Investment
Vehicles |
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
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|
|
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|
|
|
|
|
|
|
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 |
|
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|
|
|
|
|
|
|
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,
2023. 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.
|
Dollar
Range of Shares Owned1
|
|
|
|
|
|
|
|
|
1
As of March 31,
2023, William W. Priest,
John Tobin, Kera Van Valen, and Michael A. Welhoelter beneficially owned
$50,001 - $100,000, $1-- $50,000, $1 - $50,000, and
$100,001 - $500,000, 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 senior
leadership 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.
A portion
of
senior employees’, annual performance
bonus is deferred, typically with a three-year vesting schedule, and invested in
Epoch-managed investment
vehicles
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
The following table
shows the portfolio managers at the subadvisor who are jointly and primarily
responsible for the day-to-day management of the stated funds’
portfolios or the portion of the fund's portfolio managed by the
subadvisor.
|
|
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, 2023:
|
Other
Registered Investment
Companies |
Other
Pooled Investment
Vehicles |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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,
2023. 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.
|
Dollar
Range of Shares Owned1
|
|
|
|
|
1
As of March 31,
2023, Craig Bethune
and Diana Racanelli
beneficially owned $0 and
$0,
respectively, 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 following table shows
the portfolio managers at the subadvisor who are jointly and primarily
responsible for the day-to-day management of the
stated
fund’s
portfolio.
|
|
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, 2023:
|
Other
Registered Investment
Companies |
Other
Pooled Investment
Companies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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,
2023. 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.
|
|
Dollar
Range of Shares Owned |
Fundamental
Equity Income Fund1 |
|
|
|
|
|
|
|
|
|
|
|
1
As of March 31,
2023, Michael J.
Mattioli, Nicholas P. Renart, Emory W. Sanders, Jr. and Jonathan T. White
beneficially owned $100,001 - $500,000, $100,001
-
$500,000,
$100,001
-
$500,000, and $50,001
-
$100,000
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.
|
Benchmark
Index for Incentive Period |
Fundamental
Equity Income Fund |
|
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 the
subadvisor who are jointly and
primarily responsible
for the day-to-day management of the stated funds’
portfolios or the portion of
the fund's portfolio
managed
by the subadvisor.
|
|
Diversified
Real Assets Fund |
Timothy
J. Casaletto, CFA |
Diversified
Real Assets Fund |
|
Diversified
Real Assets Fund |
|
International
Growth Fund |
|
International
Growth Fund |
|
International
Growth Fund |
Zhaohuan
(Terry) Tian, CFA |
|
Mario
E. Abularach, CFA, CMT |
|
|
|
|
|
|
1
Effective December
31, 2023, John A. Boselli will no longer serve as a portfolio manager of the
fund.
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 or funds he or she manages and
any
similarly managed
accounts.
The following table
provides information as of March 31, 2023:
|
Other
Registered Investment
Companies |
Other
Pooled Investment
Vehicles |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
Registered Investment
Companies |
Other
Pooled Investment
Vehicles |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2023. 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.
|
Dollar
Range of Shares Owned |
International
Growth Fund1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diversified
Real Assets Fund4 |
|
|
|
|
|
|
1
As of March 31,
2023, John A.
Boselli,
Alvaro
Llavero, and Zhaohuan (Terry) Tian beneficially owned
$500,001
- $1
million,
$0,
and $0
of
shares of the International
Growth
Fund.
2
As of March 31, 2023,
Mario E. Abularach and Stephen Mortimer beneficially owned $0 and $100,001 -
$500,000 of shares, respectively, of Mid Cap Growth Fund.
3
As of March 31, 2023,
John A. Boselli and Timothy N. Manning beneficially owned $500,001 - $1 million
and $0 of shares, respectively, of U.S. Growth Fund.
4
As of March 31,
2023, Timothy J.
Casaletto, G. Thomas Levering
and
Bradford D. Stoesser beneficially
owned
$0,
$0, and
$0 of shares,
respectively, of Diversified
Real
Assets
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, Casaletto, 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, 2023.
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.
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.
|
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 |
|
Russell
Midcap Growth Index (50%) and Gross Lipper Mid Cap Growth
Average
(50%) |
|
Benchmark
Index and/or Peer Group for Incentive Period |
|
Russell
1000 Growth Index |
Appendix
C – Proxy Voting Policies and Procedures
The Trust Procedures
and the
proxy
voting procedures of the
Advisor and the
subadvisors are set
forth in Appendix
C.
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:
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.
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
Boston
Partners
One
Beacon Street, 30th Floor
Boston,
MA 02108—www.boston-partners.com
PROXY
VOTING POLICIES AND PROCEDURES
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.
3
Epoch Investment Partners, Inc.
Compliance Policies & Procedures Manual
Proxy
Voting and Class Action Monitoring
Effective
January 1, 2021
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
INTERNAL
Epoch Investment Partners, Inc.
Compliance Policies & Procedures Manual
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:
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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; |
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Whether
Epoch has any other economic incentive to vote in a manner that is not
consistent with the best interests of its Clients; or
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Whether
a proxy relates to a company that is a Client of Epoch.1
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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:
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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. |
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Compliance
(with assistance from Operations and Client Services) will seek to
identify instances where a proxy vote relates to a company that is a
Client of Epoch’s and escalate to the Proxy Voting Group as necessary.
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Epoch Investment Partners, Inc.
Compliance Policies & Procedures Manual
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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.
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Proxy
Voting Records
The
proxy voting record is periodically provided to Epoch by ISS. Included in these
records are:
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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.
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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.
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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.
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Manulife Investment Management global proxy
voting policy and procedures |
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INTERNAL
Global
Proxy Voting Policy and Procedures
Applicable Business Unit: Manulife Investment
Management Public Markets
Applicable Legal Entity(ies): Refer to Appendix
A
Committee Approval: Manulife IM Public Markets
Operating Committee
Business Owner: Manulife IM Public Markets
Policy Sponsor: Chief Compliance Officer,
Manulife IM Public Markets
Policy Last Updated/Reviewed: April 2021
Policy Next Review Date: April 2024
Policy Original Issue Date: February 2011
Review Cycle: Three (3) years
Company
policy documents are for internal use only and may not be shared outside the
Company, in whole or part, without prior approval from the Global Chief
Compliance Officer (or local Chief Compliance Officer if policy is only
entity-applicable) who will consult, as appropriate with, the Policy Sponsor and
legal counsel when deciding whether to approve and the conditions attached to
any approval.
INTERNAL
Manulife
Investment Management global proxy voting policy and procedures
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
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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. |
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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.
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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.
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Manulife
IM will disclose information about its proxy voting policies and
procedures to its clients. |
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Manulife
IM will maintain certain records relating to proxy voting.
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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).
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Manulife
Investment Management global proxy voting policy and procedures
Philosophy
on sustainable investing
Manulife
IM’s commitment to sustainable investment 2 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:
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Robust
oversight, including a strong and effective board with independent and
objective leaders working on behalf of shareholders;
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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; |
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A
management team aligned with shareholders through remuneration structures
that incentivize long- term performance through the judicious and
sustainable stewardship of company resources; |
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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 |
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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.
2 |
Further
information on Sustainable Investing at Manulife IM can be found at
manulifeim.com/institutional. |
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April
2021 3 |
Manulife
Investment Management global proxy voting policy and procedures
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.
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2021 4 |
Manulife
Investment Management global proxy voting policy and procedures
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 issuer as aggregated across the
funds.
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2021 5 |
Manulife
Investment Management global proxy voting policy and procedures
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:
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Manulife
IM’s aggregated holdings across all client accounts represent 2% or
greater of issued capital; |
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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
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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.
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2021 6 |
Manulife
Investment Management global proxy voting policy and procedures
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:
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Costs
associated with voting the proxy exceed the expected benefits to clients;
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2021 7 |
Manulife
Investment Management global proxy voting policy and procedures
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Underlying
securities have been lent out pursuant to a client’s securities lending
program and have not been subject to recall; |
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Short
notice of a shareholder meeting; |
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Requirements
to vote proxies in person; |
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Restrictions
on a nonnational’s ability to exercise votes, determined by local market
regulation; |
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Restrictions
on the sale of securities in proximity to the shareholder meeting (i.e.,
share blocking); |
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Requirements
to disclose commercially sensitive information that may be made public
(i.e., reregistration); |
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Requirements
to provide local agents with power of attorney to facilitate the voting
instructions (such proxies are voted on a best-efforts basis); or
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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.
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Manulife
IM has engaged its proxy voting service provider to:
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Research
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Ensure
proxies are voted and submitted in a timely manner;
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Provide
alerts when issuers file additional materials related to proxy voting
matters; |
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Perform
other administrative functions of proxy voting; |
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Maintain
records of proxy statements and provide copies of such proxy statements
promptly upon request; |
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Maintain
records of votes cast; and |
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Provide
recommendations with respect to proxy voting matters in general.
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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.
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. |
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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:
4 |
Manulife
IM aggregated voting records are available through this site
manulifeim.com/institutional/us/en/sustainability |
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Manulife
IM has a business relationship or potential relationship with the issuer;
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Manulife
IM has a business relationship with the proponent of the proxy proposal;
or |
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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.
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. |
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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:
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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. |
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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. |
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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.
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Investment Management global proxy voting policy and procedures
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*
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Investment Management global proxy voting policy and procedures
* |
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.
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Investment Management global proxy voting policy and procedures
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
generally use 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. |
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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
nonexecutive, 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.
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Committee independence: Manulife IM also
prefers that key board committees are composed of independent directors.
Specifically, the audit, nomination, and compensation committees should
generally be entirely or majority composed of independent directors.
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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. |
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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. |
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e. |
Classified/staggered boards: Manulife IM
prefers that directors be subject to election and reelection 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 generally
supports proposals to eliminate these structures. |
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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.
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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.
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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. |
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Investment Management global proxy voting policy and procedures
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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.
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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:
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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).
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Investment Management global proxy voting policy and procedures
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.
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Manulife
Investment Management global proxy voting policy and procedures
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.
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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. |
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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. |
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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.
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7 |
For
more information on issues generally of interest to our firm, please see
the Manulife Investment Management engagement policy, the Manulife
Investment Management sustainable investing and sustainability risk
statement, and the Manulife Investment Management climate change
statement. |
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Investment Management global proxy voting policy and procedures
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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.
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Investment Management global proxy voting policy and procedures
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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. |
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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. |
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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. |
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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.
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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.
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e. |
Right to call a special meeting: Manulife
IM is generally supportive of the shareholder right to call a special
meeting. This right allows shareholders to quickly respond to events that
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. |
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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: |
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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. |
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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.
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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. |
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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.
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Investment Management global proxy voting policy and procedures
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v. |
Lack of disclosure: Transparency is
essential to shareholder analysis and understanding of executive
remuneration at a company. Manulife IM expects firms to clearly disclose
all major components of remuneration. This includes disclosure of amounts,
performance metrics and targets, vesting terms, and pay outcomes.
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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. |
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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.
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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: |
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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. |
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Investment Management global proxy voting policy and procedures
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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.
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Investment Management global proxy voting policy and procedures
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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.
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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 shareholdings 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. Firms should be transparent regarding
auditor fees and other 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. |
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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.
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b. |
Auditor rotation: If Manulife IM believes
that the independence and objectivity of an auditor may be 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.
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WELLINGTON
MANAGEMENT |
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GLOBAL
PROXY POLICY AND PROCEDURES |
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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.
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3) |
Identifies
and resolves all material proxy-related conflicts of interest between the
firm and its clients in the best interests of the client.
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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.
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WELLINGTON
MANAGEMENT
GLOBAL
PROXY POLICY AND PROCEDURES
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:
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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. |
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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.
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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
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MANAGEMENT
GLOBAL
PROXY POLICY AND PROCEDURES
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”).
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MANAGEMENT
GLOBAL
PROXY POLICY AND PROCEDURES
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
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