(To Prospectus dated March 1, 2024)
John Hancock Tax-Advantaged Global Shareholder Yield Fund
John Hancock Tax-Advantaged Global Shareholder Yield Fund (the “Fund”) is a diversified, closed-end management investment company. The Fund
commenced operations in September 2007 following an initial public offering.
The Fund’s investment objective is to provide total return consisting of a high level of current income and gains and long term
capital appreciation. In pursuing its investment objective of total return, the Fund will seek to emphasize high current income. In pursuing its
investment objective, the Fund seeks to achieve favorable after-tax returns for its shareholders by seeking to minimize the U.S. federal income tax
consequences on income and gains generated by the Fund. There can be no assurance that the Fund will achieve its investment objective.
John Hancock Investment Management Distributors LLC (the “Distributor”) has entered into a distribution agreement with the Fund,
dated March 1, 2024, authorizing it to act as distributor for the Fund’s common shares of beneficial interest, par value $0.01 per share (“Common
Shares”), offered by this prospectus supplement (“Prospectus Supplement”) and the accompanying prospectus dated March 1, 2024 (the
“Prospectus”). The Distributor also has entered into a dealer agreement, dated March 1, 2024 (the “Dealer Agreement”), with UBS Securities LLC (the
“Dealer”) with respect to the Fund relating to the Common Shares offered by this Prospectus Supplement and the Prospectus. In accordance with the
terms of the Dealer Agreement, the Fund may offer and sell its Common Shares from time to time through the Dealer as sub-placement agent for the
offer and sale of the Common Shares. Under the Investment Company Act of 1940, as amended (the “1940 Act”), the Fund may not sell any Common
Shares at a price below the current net asset value (“NAV”) of such Common Shares, exclusive of any distributing commission or discount.
Sales of Common Shares, if any, under this Prospectus Supplement and the accompanying Prospectus may be made in negotiated transactions or
transactions that are deemed to be “at the market” as defined in Rule 415 under the Securities Act of 1933, as amended (the “1933 Act”), including
sales made directly on the New York Stock Exchange (“NYSE”) or sales made to or through a market maker other than on an exchange.
The Fund will compensate the Distributor with respect to sales of the Common Shares at a commission rate of 1% of the gross proceeds of the sale of
Common Shares. The Distributor will compensate the Dealer out of this commission at a certain percentage rate of the gross proceeds of the sale of
Common Shares sold under the Dealer Agreement, with the exact amount of such compensation to be mutually agreed upon by the Distributor and the
Dealer from time to time. In connection with the sale of the Common Shares on the Fund’s behalf, the Distributor may be deemed to be an
“underwriter” within the meaning of the 1933 Act and the compensation of the Distributor may be deemed to be underwriting commissions or
discounts.
Under normal market conditions, the Fund invests at least 80% of its total assets in a diversified portfolio of dividend-paying
securities of issuers located throughout the world. This policy is subject to the requirement that the manager believes at the time of investment that
such securities are eligible to pay tax-advantaged dividends. The Fund seeks to produce superior, risk-adjusted returns by using a disciplined,
proprietary investment approach that is focused on identifying companies with strong free cash flow and that use their free cash flow to seek to
maximize “shareholder yield” through dividend payments, stock repurchases and debt reduction. By assembling a diversified portfolio of securities
which, in the aggregate, possess positive growth of free cash flow, high cash dividend yields, share buyback programs and net debt reductions, the
Fund seeks to provide shareholders an attractive total return with less volatility than the global equity market as a whole. “Free cash flow” is the cash
available for distribution to investors after all planned capital investment and taxes. The Advisor (as defined below) believes that free cash flow is
important because it allows a company to pursue opportunities that enhance shareholder value.
Investment Advisor and Subadvisor.
The Fund’s investment advisor is John Hancock Investment Management LLC (the “Advisor” or “JHIM”) and its
subadvisor is Epoch Investment Partners, Inc. (“Epoch” or the “Subadvisor”).
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.
The Fund’s currently outstanding Common Shares are listed on the NYSE under the symbol “HTY.” Any new Common Shares offered
and sold hereby will be listed on the NYSE and trade under this symbol. The NAV of the Common Shares on February 14, 2024 was $5.23 per share.
As of February 14, 2024, the last reported sale price per share of Common Shares in the market as of the close of regular trading on the NYSE was
$5.05.
The Common Shares have traded both at a premium and a discount to NAV. The Fund cannot predict whether Common Shares will
trade in the future at a premium or discount to NAV. The provisions of the 1940 Act generally require that the public offering price of
common shares (less any underwriting commissions and discounts) must equal or exceed the NAV per share of a company’s common
stock (calculated within 48 hours of pricing). The Fund’s issuance of Common Shares may have an adverse effect on prices in the
secondary market for the Common Shares by increasing the number of Common Shares available, which may put downward pressure
on the market price for the Common Shares. Shares of common stock of closed-end investment companies frequently trade at a
discount from NAV, which may increase investors’ risk of loss.
Investing in the Common Shares involves certain risks. You could lose all or some of your investment. You should consider carefully
these risks together with all of the other information contained in this Prospectus Supplement and the accompanying Prospectus
before making a decision to purchase the Fund’s securities. See “Risk Factors” beginning on page 20 of the accompanying Prospectus.
Neither the SEC nor any state securities commission has approved or disapproved of these securities or determined whether this
Prospectus Supplement or the accompanying Prospectus is truthful or complete. Any representation to the contrary is a criminal
You should read this Prospectus Supplement and the accompanying Prospectus, which contain important information, before deciding whether to
invest in the Common Shares. You should retain this Prospectus Supplement and the accompanying Prospectus for future reference. A Statement of
Additional Information (“SAI”), dated March 1, 2024, as may be supplemented from time to time, containing additional information about the Fund,
has been filed with the SEC and is incorporated by reference in its entirety into this Prospectus Supplement and the accompanying Prospectus. This
Prospectus Supplement, together with the accompanying Prospectus and SAI, set forth concisely the information about the Fund that you should
know before investing. The Table of Contents for the SAI is on page 43 of the accompanying Prospectus. A paper copy of the Registration Statement or
SAI may be obtained without charge by visiting the Fund’s website (jhinvestments.com) or by calling 800-225-6020 (toll-free) or electronically from
the SEC’s website at sec.gov. Copies of the Fund’s annual report and semi-annual report and other information about the Fund may be obtained upon
request by writing to the Fund, by calling 800-225-6020, or by visiting the Fund’s website at jhinvestments.com. You also may obtain a copy of any
information regarding the Fund filed with the SEC from the SEC’s website (www.sec.gov). You may also e-mail requests for these documents to
publicinfo@sec.gov or make a request in writing to the SEC’s Public Reference Section, Washington, D.C. 20549-0102.
The Common Shares do not represent a deposit or obligation of, and are not guaranteed or endorsed by, any bank or other insured depositary
institution, and are not federally insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other government agency.
Prospectus Supplement dated March 1, 2024
You should rely only on the information contained in, or incorporated by reference into, this Prospectus Supplement, the
accompanying Prospectus and the SAI in making your investment decisions. The Fund has not authorized any person to provide you
with different information. If anyone provides you with different or inconsistent information, you should not rely on it. This Prospectus
Supplement, which describes the specific terms of this offering including the method of distribution, also adds to and updates
information contained in the accompanying Prospectus, the SAI and the documents incorporated by reference into the accompanying
Prospectus and the SAI. If the description of this offering varies between this Prospectus Supplement and the accompanying
Prospectus or the SAI, you should rely on the information contained in this Prospectus Supplement. The Fund is not making an offer to
sell the Common Shares in any jurisdiction where the offer or sale is not permitted. You should assume that the information in this
Prospectus Supplement, the accompanying Prospectus and the SAI is accurate only as of the dates on their covers. The Fund’s
business, financial condition and prospects may have changed since the date of its description in this Prospectus Supplement or the
date of its description in the accompanying Prospectus and SAI.
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Market and Net Asset Value Information | |
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Principal investment strategies | |
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Custodian and Transfer Agent | |
Determination of Net Asset Value | |
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Dividend Reinvestment Plan | |
Closed-End Fund Structure | |
U.S. Federal Income Tax Matters | |
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Description of Capital Structure | |
Certain Provisions in the Declaration of Trust and By-Laws | |
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Independent Registered Public Accounting Firm | |
Legal and Regulatory Matters | |
Incorporation by Reference | |
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Table of Contents of the Statement of Additional Information | |
The Fund’s Privacy Policy | |
Until March 26, 2024 (25 days after the date of this Prospectus Supplement), all dealers that buy, sell or trade the Common Shares,
whether or not participating in this offering, may be required to deliver the Prospectus and this Prospectus Supplement. This
requirement is in addition to the dealers’ obligation to deliver the Prospectus and this Prospectus Supplement when acting as
underwriters and with respect to their unsold allotments or subscriptions.
Cautionary Notice Regarding Forward-Looking Statements
This Prospectus Supplement, the accompanying Prospectus and the SAI contain “forward-looking statements.” Forward-looking statements can be
identified by the words “may,” “will,” “intend,” “expect,” “estimate,” “continue,” “plan,” “anticipate,” and similar terms and the negative of such terms. Such
forward-looking statements may be contained in this Prospectus Supplement as well as in the accompanying Prospectus and the SAI. By their nature,
all forward-looking statements involve risks and uncertainties, and actual results could differ materially from those contemplated by the forward-looking
statements. Several factors that could materially affect the Fund’s actual results are the performance of the portfolio of securities the Fund holds, the
price at which the Common Shares will trade in the public markets and other factors discussed in the Fund’s periodic filings with the SEC. Currently
known risk factors that could cause actual results to differ materially from the Fund’s expectations include, but are not limited to, the factors described
in the “Risk Factors” section of the accompanying Prospectus. You are urged to review carefully those sections for a more detailed discussion of the
risks of an investment in the Fund’s securities.
Although the Fund believes that the expectations expressed in the Fund’s forward-looking statements are reasonable, actual results could differ
materially from those projected or assumed in the Fund’s forward-looking statements. The Fund’s future financial condition and results of operations, as
well as any forward-looking statements, are subject to change and are subject to inherent risks and uncertainties, such as those disclosed in the “Risk
Factors” section of the accompanying Prospectus. All forward-looking statements contained or incorporated by reference in this Prospectus
Supplement, the accompanying Prospectus or the SAI are made as of the date of this Prospectus Supplement, the accompanying Prospectus or the SAI,
as the case may be. Except for the Fund’s ongoing obligations under the federal securities laws, the Fund does not intend, and the Fund undertakes no
obligation, to update any forward-looking statement. The forward-looking statements contained in this Prospectus Supplement, the accompanying
Prospectus and the SAI are excluded from the safe harbor protection provided by section 27A of the 1933 Act.
Prospectus Supplement Summary
This is only a summary. You should review the more detailed information elsewhere in this prospectus supplement (“Prospectus Supplement”), the
accompanying prospectus (the “Prospectus”), and in the Statement of Additional Information (the “SAI”) prior to making an investment in the Fund. See
“Risk Factors” in the accompanying Prospectus.
John Hancock Tax-Advantaged Global Shareholder Yield Fund (the “Fund” or “fund”) is a diversified, closed-end management investment company. The
fund commenced operations in September 2007 following an initial public offering.
The fund’s investment objective is to provide total return consisting of a high level of current income and gains and long-term capital appreciation. In
pursuing its investment objective of total return, the Fund will seek to emphasize high current income. In pursuing its investment objective, the Fund
seeks to achieve favorable after-tax returns for its shareholders by seeking to minimize the U.S. federal income tax consequences on income and gains
generated by the Fund. There can be no assurance that the Fund will achieve its investment objective. The Fund’s investment objective is fundamental
and may not be changed without shareholder approval.
John Hancock Investment Management Distributors LLC (the “Distributor”) has entered into a distribution agreement with the Fund, dated March 1,
2024, authorizing it to act as distributor for the Fund’s common shares of beneficial interest, par value $0.01 per share (“Common Shares”), offered by
this Prospectus Supplement and the accompanying Prospectus dated March 1, 2024. The Distributor also has entered into a dealer agreement, dated
March 1, 2024, (the “Dealer Agreement”) with UBS Securities LLC (the “Dealer”) with respect to the Fund relating to the Common Shares offered by this
Prospectus Supplement and the Prospectus. In accordance with the terms of the Dealer Agreement, the Fund may offer and sell up to 600,000
Common Shares from time to time through the Dealer as sub-placement agent for the offer and sale of the Common Shares.
Offerings of the Common Shares will be subject to the provisions of the Investment Company Act of 1940, as amended (the “1940 Act”), which generally
require that the public offering price of common shares of a closed-end investment company (exclusive of distribution commissions and discounts)
must equal or exceed the net asset value (“NAV”) per share of the company’s common shares (calculated within 48 hours of pricing), absent shareholder
approval or under certain other circumstances.
Sales of the Common Shares, if any, under this Prospectus Supplement and the accompanying Prospectus may be made in negotiated transactions or
transactions that are deemed to be “at the market” as defined in Rule 415 under the Securities Act of 1933, as amended (the “1933 Act”), including
sales made directly on the New York Stock Exchange (“NYSE”) or sales made to or through a market maker other than on an exchange. The Common
Shares may not be sold through agents, underwriters or dealers without delivery or deemed delivery of a Prospectus and an accompanying Prospectus
Supplement describing the method and terms of the offering of Common Shares.
The Fund’s currently outstanding Common Shares are listed on the NYSE under the symbol “HTY.” Any new Common Shares offered and sold hereby will
be listed on the NYSE and trade under this symbol. The NAV of the Common Shares on February 14, 2024 was $5.23 per share. As of February 14,
2024, the last reported sale price per share of Common Shares in the market as of the close of regular trading on the NYSE was $5.05.
The Fund currently intends to invest substantially all of the net proceeds of any sales of Common Shares pursuant to this Prospectus Supplement and
the accompanying Prospectus in accordance with its investment objective and policies as described in the accompanying Prospectus under
“Investment Objective” and “Investment Strategies” within three months of receipt of such proceeds. Such investments may be delayed up to three
months if suitable investments are unavailable at the time or for other reasons, such as market volatility and lack of liquidity in the markets of suitable
investments. Pending such investment, the Fund anticipates that it will invest the proceeds in high-quality, short-term debt securities, cash and/or cash
equivalents. A delay in the anticipated use of proceeds could lower returns and reduce the Fund’s distribution to the holders of Common Shares
(“Common Shareholders”) or result in a distribution consisting principally of a return of capital.
Investment Advisor and Subadvisor
The Fund’s investment advisor is John Hancock Investment Management LLC (the “Advisor” or “JHIM”) and its subadvisor is Epoch Investment Partners,
Inc. (“Epoch”), the “Subadvisor”).
The Advisor is an indirect wholly-owned subsidiary of Manulife Financial Corporation. The Advisor is responsible for overseeing the management of the
Fund, including its day-to-day business operations and monitoring Epoch. As of December 31, 2023, the Advisor had total assets under management of
approximately $153.7 billion.
Epoch, a subadvisor to the Fund, handles the Fund’s portfolio management activities, subject to oversight by the Advisor. Epoch, founded in 2004, is a
wholly-owned subsidiary of The Toronto-Dominion Bank. As of December 31, 2023, Epoch managed on a worldwide basis approximately $34.3 billion.
See “Management of the Fund—The Advisor” and “—The Subadvisor” in the accompanying Prospectus.
See “Risk Factors” beginning on page 20 of the accompanying Prospectus for a discussion of factors you should consider carefully before deciding to
invest in the Common Shares.
The purpose of the table below is to help you understand all fees and expenses that you, as a Common Shareholder, would bear directly or indirectly. In
accordance with SEC requirements, the table below shows the fund’s expenses as a percentage of its average net assets as of October 31, 2023, and
not as a percentage of total assets. By showing expenses as a percentage of average net assets, expenses are not expressed as a percentage of all of
the assets
in which
the fund invests. The offering costs to be paid or reimbursed by the fund are not included in the Annual Expenses table below.
However, these expenses will be borne by Common Shareholders and may result in a reduction in the NAV of Common Shares. See “Management of the
fund” and “Dividend Reinvestment Plan” in the accompanying Prospectus. The table and example are based on the fund’s capital structure as of
October 31, 2023.
Shareholder Transaction Expenses (%) | |
Sales load (as a percentage of offering price) (1) | |
Offering expenses (as a percentage of offering price) (2) | |
Dividend Reinvestment Plan fees (3) | |
Annual Expenses (Percentage of Net Assets Attributable to Common Shares) (%) | |
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Total Annual Operating Expenses | |
Contractual Expense Reimbursement (5) | |
Total Annual Fund Operating Expenses After Expense Reimbursements | |
Represents the estimated commission with respect to the Common Shares being sold in this offering. There is no guarantee that there will be any sales of the Common
Shares pursuant to this Prospectus Supplement and the accompanying Prospectus. Actual sales of the Common Shares under this Prospectus Supple
me
nt and the
accompanying Prospectus, if any, may be less than as set forth under “Capitalization” below. In addition, the price per share of any such sale may be greater or less
than the price set forth under “Capitalization” below, depending on market price of the Common Shares at the time of any such sale.
Offering costs charged upon sale of the shares, based on the las
t re
ported sale price on February 14, 2024.
Participants in the Fund’s dividend reinvestment plan do not pay brokerage charges with respect to Common Shares issued directly by the Fund. However, whenever
Common Shares are purchased or sold on the NYSE or otherwise on the open market, each participant will pay a pro rata portion of brokerage trading fees, currently
$0.05 per share purchased or sold. Brokerage trading fees will be deducted from amounts to be invested. Shareholders participating in the Plan may buy additional
Common Shares of the Fund through the Plan at any time and will be charged a $5 transaction fee plus $0.05 per share brokerage trading fee for each order. See
“Distribution Policy” and “Dividend Reinvestment Plan” in the accompanying Prospectus.
See “Management of the Fund—The Advisor” in the accompanying Prospectus.
The Advisor contractually agrees to waive a portion of its management fee and/or reimburse expenses for the Fund and certain other John Hancock funds according to
an asset level breakpoint schedule that is based on the aggregate net assets of all the funds participating in the waiver or reimbursement. This waiver is allocated
proportionally among the participating funds. During its most recent fiscal year, the Fund’s reimbursement amounted to 0.01% of the Fund’s average daily net assets.
This agreement expires on July 31, 2025, unless renewed by mutual agreement of the Fund and the Advisor based upon a determination that this is appropriate under
the circumstances at that time.
The following example illustrates the expenses that Common Shareholders would pay on a $1,000 investment in Common Shares, assuming (i) total
annual expenses set forth above, including any reimbursements through their current expiration date; (ii) sales load of 1.00%, (iii) offering expenses of
1.55%; (iv) a 5% annual return; and (v) all distributions are reinvested at NAV:
The above table and example and the assumption in the example of a 5% annual return are required by regulations of the SEC that are applicable to all
investment companies; the assumed 5% annual return is not a prediction of, and does not represent, the projected or actual performance of the
Common Shares. For more complete descriptions of certain of the Fund’s costs and expenses, see “Management of the Fund” in the accompanying
Prospectus. In addition, while the example assumes reinvestment of all dividends and distributions at NAV, participants in the Fund’s dividend
reinvestment plan may receive Common Shares purchased or issued at a price or value different from NAV. See “Distribution Policy” and “Dividend
Reinvestment Plan” in the accompanying Prospectus.
The example should not be considered a representation of past or future expenses, and the Fund’s actual expenses may be greater or
less than those shown. Moreover, the Fund’s actual rate of return may be greater or less than the hypothetical 5% return shown in the
The Fund may offer and sell up to 600,000 Common Shares from time to time through the Dealer as sub-placement agent under this Prospectus
Supplement and the accompanying Prospectus. Of the 600,000 Common Shares, 243,998 have been issued and 356,002 are unsold. In addition, the
Fund has registered, and may take down, additional shares at a later date. There is no guarantee that there will be any sales of the Common Shares
pursuant to this Prospectus Supplement and the accompanying Prospectus. The table below assumes that the Fund will sell 356,002 Common Shares
at a price of $5.05 per share (the last reported sale price per share of Common Shares in the market as of the close of regular trading on the NYSE on
February 14, 2024). Actual sales, if any, of the Common Shares under this Prospectus Supplement and the accompanying Prospectus may be greater
or less than $5.05 per share, depending on the market price of the Common Shares at the time of any such sale. To the extent that the market price per
share of the Common Shares on any given day is less than the net asset value per share on such day, the Fund will instruct the Dealer not to make any
sales on such day.
The following table sets forth the Fund’s capitalization:
on a historical basis as of October 31, 2023 (audited);
on an actual basis as of February 14, 2024 to reflect the sale and reinvestment of Common Shares from November 1, 2023 through February 14,
2024, and the application of the net proceeds from such sale of Common Shares; and
on a pro forma as adjusted basis to reflect the assumed sale of 356,002 Common Shares at $5.05 per share (the last reported sale price per
share of Common Shares in the market as of the close of regular trading on the NYSE on February 14, 2024), in an offering under this Prospectus
Supplement and the accompanying Prospectus, after deducting the assumed commission of $17,978 (representing an estimated commission to
the Distributor of 1.00% of the gross proceeds of the sale of Common Shares, of which a certain percentage will be paid to the Dealer in
connection with sales of Common Shares effected in this offering) and the offering expenses of $16,944 related to the issuance of Common
Shares.
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Common Shares of beneficial interest outstanding — unlimited number of shares authorized with $0.01 | | | |
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Total distributable earnings (loss) | | | |
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Net asset value per share ($) | | | |
Market and Net Asset Value Information
The fund’s currently outstanding Common Shares are listed on the New York Stock Exchange (“NYSE”) under the symbol “HTY” and commenced trading
on the NYSE on September 26, 2007.
The Common Shares have traded both at a premium and at a discount to their net asset value (“NAV”). The fund cannot predict whether its shares will
trade in the future at a premium or discount to NAV. The provisions of the 1940 Act generally require that the public offering price of common shares
(less any underwriting commissions and discounts) must equal or exceed the NAV per share of a company’s common stock (calculated within 48 hours
of pricing). The fund’s issuance of Common Shares may have an adverse effect on prices in the secondary market for Common Shares by increasing the
number of Common Shares available, which may put downward pressure on the market price for Common Shares. Shares of common stock of
closed-end investment companies frequently trade at a discount from NAV. See “Risk Factors—General Risks—Market Discount Risk” in the
accompanying Prospectus.
The following table sets forth for each of the periods indicated the high and low closing market prices for Common Shares on the NYSE, and the
corresponding NAV per share and the premium or discount to NAV per share at which the Common Shares were trading as of such date. NAV is
determined once daily as of the close of regular trading on the NYSE (typically 4:00
p.m.
, Eastern Time). See “Determination of Net Asset Value” in the
accompanying Prospectus for information as to the determination of the fund’s NAV.
The last reported sale price, NAV per share and percentage discount to NAV per share of the Common Shares as of February 14, 2024 were $5.05,
$5.23 and -3.44%, respectively. As of February 14, 2024, the fund had 10,921,751 Common Shares outstanding and net assets of the fund were
$57,149,121.
The Fund is a diversified, closed-end management investment company registered under the 1940 Act. The Fund was organized on April 23, 2007 as a
Massachusetts business trust pursuant to an Agreement and Declaration of Trust (the “Declaration of Trust”). The Fund commenced operations in
September 2007 following an initial public offering. On September 25, 2007, the Fund issued an aggregate of 8,750,000 Common Shares of
beneficial interest, par value $0.01 per share, pursuant to the initial public offering thereof. On November 14, 2007, the Fund issued an additional
600,000 Common Shares in connection with the exercise by the initial underwriters of an over-allotment option. In addition, the Fund has issued
1,443,998 Common Shares pursuant to the Fund’s equity shelf-offering program during the period from November 1, 2012 to February 14, 2024. The
Fund has registered, and may take down, additional shares at a later date. The Fund’s principal office is located at 200 Berkeley Street, Boston,
Massachusetts 02116 and its phone number is 800-225-6020.
The following provides information about the fund’s outstanding securities as of October 31, 2023.
Sales of the Common Shares, if any, under this Prospectus Supplement and the accompanying Prospectus may be made in negotiated transactions or
transactions that are deemed to be “at the market” as defined in Rule 415 under the 1933 Act, including sales made directly on the NYSE or sales made
to or through a market maker other than on an exchange. There is no guarantee that there will be any sales of the Common Shares pursuant to this
Prospectus Supplement and the accompanying Prospectus. Actual sales, if any, of the Common Shares under this Prospectus Supplement and the
accompanying Prospectus may be less than as set forth in this paragraph. In addition, the price per share of any such sale may be greater or less than
the price set forth in this paragraph, depending on the market price of the Common Shares at the time of any such sale. As a result, the actual net
proceeds the Fund receives may be more or less than the amount of net proceeds estimated in this Prospectus Supplement. Assuming the sale of all of
the Common Shares offered under this Prospectus Supplement and the accompanying Prospectus, at the last reported sale price of $5.05 per share
for the Common Shares in the market as of the close of regular trading on the NYSE as of February 14, 2024 the fund estimates that the net proceeds of
this offering will be approximately $1,762,888 after deducting the estimated sales load and the estimated offering expenses payable by the fund.
Subject to the remainder of this section, the Fund currently intends to invest substantially all of the net proceeds of any sales of Common Shares
pursuant to this Prospectus Supplement and the accompanying Prospectus in accordance with its investment objective and policies as described in the
accompanying Prospectus under “Investment Objective” and “Investment Strategies” within three months of receipt of such proceeds. Such investments
may be delayed up to three months if suitable investments are unavailable at the time or for other reasons, such as market volatility and lack of liquidity
in the markets of suitable investments. Pending such investment, the Fund anticipates that it will invest the proceeds in high-quality, short-term debt
securities, cash and/or cash equivalents. A delay in the anticipated use of proceeds could lower returns and reduce the Fund’s distribution to Common
Shareholders or result in a distribution consisting principally of a return of capital.
Under the Dealer Agreement between the Distributor and the Dealer, upon written instructions from the Distributor, the Dealer will use its reasonable
best efforts, to sell, as sub-placement agent, the Common Shares under the terms and subject to the conditions set forth in the Dealer Agreement. The
Dealer’s solicitation will continue until the Distributor instructs the Dealer to suspend the solicitations and offers. The Distributor will instruct the Dealer
as to the amount of Common Shares to be sold by the Dealer. The Distributor may instruct the Dealer not to sell Common Shares if the sales cannot be
effected at or above the price designated by the Distributor in any instruction. To the extent that the market price per share of the Common Shares on
any given day is less than the NAV per share on such day, the Distributor will instruct the Dealer not to make any sales on such day. The Distributor or the
Dealer may suspend the offering of Common Shares upon proper notice and subject to other conditions.
The Dealer will provide written confirmation to the Distributor following the close of trading on the day on which Common Shares are sold under the
Dealer Agreement. Each confirmation will include the number of shares sold on the preceding day, the net proceeds to the Fund and the compensation
payable by the Distributor to the Dealer in connection with the sales.
The Fund will compensate the Distributor with respect to sales of the Common Shares at a commission rate of 1.00% of the gross proceeds of the sale
of Common Shares. The Distributor will compensate the Dealer for its services in acting as sub-placement agent in the sale of Common Shares out of
this commission at a certain percentage rate of the gross proceeds of the sale of Common Shares sold under the Dealer Agreement, with the exact
amount of such compensation to be mutually agreed upon by the Distributor and the Dealer from time to time. There is no guarantee that there will be
any sales of the Common Shares pursuant to this Prospectus Supplement and the accompanying Prospectus. Actual sales, if any, of the Common
Shares under this Prospectus Supplement and the accompanying Prospectus may be greater or less than the price set forth in this paragraph,
depending on the market price of Common Shares at the time of any such sale. Assuming the 600,000 Common Shares offered hereby are sold at a
market price of $5.05 per share (the last reported sale price per share of Common Shares in the market as of the close of regular trading on the NYSE
on February 14, 2024), the Fund estimates that the total expenses for the offering, excluding compensation payable to the Distributor and the Dealer,
would be approximately $46,850.
Settlement for sales of Common Shares will occur on the second trading day following the date on which such sales are made, in return for payment of
the net proceeds to the Fund. There is no arrangement for funds to be received in an escrow, trust or similar arrangement.
The Distributor has agreed to provide indemnification and contribution to the Dealer against certain civil liabilities, including liabilities under the 1933
Act.
The Dealer Agreement will remain in full force and effect unless terminated by either party upon 30 days’ written notice to the other party.
The principal business address of the Dealer is 1285 Avenue of the Americas, New York, NY 10019.
This Prospectus Supplement, the accompanying Prospectus, and the SAI do not contain all of the information set forth in the Registration Statement
that the Fund has filed with the SEC (file No. 333-276048). The complete Registration Statement may be obtained from the SEC at sec.gov. See the
cover page of the accompanying Prospectus for information about how to obtain a paper copy of the Registration Statement or SAI without charge.
John Hancock Tax-Advantaged Global Shareholder Yield Fund
Until March 26, 2024 (25 days after the date of this Prospectus Supplement), all dealers that buy, sell or trade the Common Shares, whether or not
participating in this offering, may be required to deliver a prospectus and the applicable prospectus supplement. This delivery requirement is in
addition to the dealers’ obligation to deliver a prospectus and the applicable prospectus supplement when acting as underwriters and with respect to
their unsold allotments or subscriptions.
Base Prospectus Dated March 1, 2024
John Hancock Tax-Advantaged Global Shareholder Yield Fund
John Hancock Tax-Advantaged Global Shareholder Yield Fund (the “Fund” or “fund”) is a diversified, closed-end management investment company. The
fund commenced operations in September 2007 following an initial public offering.
The fund’s investment objective is to provide total return consisting of a high level of current income and gains and long term
capital appreciation. In pursuing its investment objective of total return, the fund will seek to emphasize high current income. In pursuing its
investment objective, the fund seeks to achieve favorable after-tax returns for its shareholders by seeking to minimize the U.S. federal income tax
consequences on income and gains generated by the fund. There can be no assurance that the fund will achieve its investment objective.
The fund may offer, from time to time, in one or more offerings, the fund’s common shares of beneficial interest, par value $0.01 per
share (“Common Shares”). Common Shares may be offered at prices and on terms to be set forth in one or more supplements to this Prospectus
(each, a “Prospectus Supplement”). You should read this Prospectus and the applicable Prospectus Supplement carefully before you invest in
Common Shares.
Common Shares may be offered directly to one or more purchasers, through agents designated from time to time by the fund, or to or through
underwriters or dealers. The Prospectus Supplement relating to the offering will identify any agents, underwriters or dealers involved in the offer or
sale of Common Shares, and will set forth any applicable offering price, sales load, fee, commission or discount arrangement between the fund and its
agents or underwriters, or among its underwriters, or the basis upon which such amount may be calculated, net proceeds and use of proceeds, and
the terms of any sale. The fund may not sell any Common Shares through agents, underwriters or dealers without delivery of a Prospectus Supplement
describing the method and terms of the particular offering of the Common Shares.
Under normal market conditions, the fund invests at least 80% of its total assets in a diversified portfolio of dividend-paying
securities of issuers located throughout the world. This policy is subject to the requirement that the manager believes at the time of investment that
such securities are eligible to pay tax-advantaged dividends. The fund seeks to produce superior, risk-adjusted returns by using a disciplined,
proprietary investment approach that is focused on identifying companies with strong free cash flow and that use their free cash flow to seek to
maximize “shareholder yield” through dividend payments, stock repurchases and debt reduction. By assembling a diversified portfolio of securities
which, in the aggregate, possess positive growth of free cash flow, high cash dividend yields, share buyback programs and net debt reductions, the
fund seeks to provide shareholders an attractive total return with less volatility than the global equity market as a whole. “Free cash flow” is the cash
available for distribution to investors after all planned capital investment and taxes. The Advisor (as defined below) believes that free cash flow is
important because it allows a company to pursue opportunities that enhance shareholder value.
Investment Advisor and Subadvisor.
The fund’s investment advisor is John Hancock Investment Management LLC (the “Advisor” or “JHIM”) and its
subadvisor is Epoch Investment Partners, Inc. (“Epoch”), the “subadvisor”).
The fund’s currently outstanding Common Shares are listed on the New York Stock Exchange (“NYSE”) under the symbol “HTY.” Any
new Common Shares offered and sold hereby are expected to be listed on the NYSE and trade under this symbol. As of February 14, 2024, the last
reported sale price for the Common Shares was $5.05.
The Common Shares have traded both at a premium and a discount to net asset value (“NAV”). The fund cannot predict whether
Common Shares will trade in the future at a premium or discount to NAV. The provisions of the Investment Company Act of 1940, as
amended, generally require that the public offering price of common shares (less any underwriting commissions and discounts) must
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.
equal or exceed the NAV per share of a company’s common stock (calculated within 48 hours of pricing). The fund’s issuance of
Common Shares may have an adverse effect on prices in the secondary market for the Common Shares by increasing the number of
Common Shares available, which may put downward pressure on the market price for the Common Shares. Shares of common stock of
closed-end investment companies frequently trade at a discount from NAV, which may increase investors’ risk of loss.
Investing in the Common Shares involves certain risks. You could lose all or some of your investment. You should consider carefully
these risks together with all of the other information contained in this Prospectus before making a decision to purchase the fund’s
securities. See “Risk Factors” beginning on page
Neither the Securities and Exchange Commission (the “SEC”) nor any state securities commission has approved or disapproved of
these securities or determined whether this Prospectus is truthful or complete. Any representation to the contrary is a criminal
This Prospectus, together with any applicable Prospectus Supplement, sets forth concisely the information about the fund that a prospective investor
should know before investing. You should read this Prospectus and the applicable Prospectus Supplement, which contain important information,
before deciding whether to invest in the Common Shares. You should retain the Prospectus and Prospectus Supplement for future reference. A
Statement of Additional Information (“SAI”), dated March 1, 2024, containing additional information about the fund, has been filed with the SEC and is
incorporated by reference in its entirety into this Prospectus. The Table of Contents for the SAI is on page
44
of the Prospectus. A paper copy of the
Registration Statement or SAI may be obtained without charge by calling 800-225-6020 (toll-free) or electronically from the SEC’s website at sec.gov.
Copies of the fund’s annual report and semi-annual report and other information about the fund may be obtained upon request by writing to the fund,
by calling 800-225-6020, or by visiting the fund’s website at https://www.jhinvestments.com/investments/closed-end-fund/international-equity-funds/tax-advantaged-global-shareholder-yield-fund-ce-hty.
You also may obtain a copy of any information regarding the fund filed with the SEC from
the SEC’s website (sec.gov).
The fund’s Common Shares do not represent a deposit or obligation of, and are not guaranteed or endorsed by, any bank or other insured depositary
institution, and are not federally insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other government agency.
Prospectus dated March 1, 2024
You should rely only on the information contained in, or incorporated by reference into, this Prospectus, any related Prospectus
Supplement and the SAI in making your investment decisions. The Fund has not authorized any person to provide you with different
information. If anyone provides you with different or inconsistent information, you should not rely on it. The fund is not making an offer
to sell the Common Shares in any jurisdiction where the offer or sale is not permitted. You should assume that the information in this
Prospectus and any Prospectus Supplement is accurate only as of the dates on their covers. The fund’s business, financial condition
and prospects may have changed since the date of its description in this Prospectus or the date of its description in any Prospectus
This is only a summary. You should review the more detailed information elsewhere in this prospectus (“Prospectus”), in any related
supplement to this Prospectus (each, a “Prospectus Supplement”), and in the Statement of Additional Information (the “SAI”) prior to
making an investment in the fund. See “Risk Factors”
John Hancock Tax-Advantaged Global Shareholder Yield Fund (the “Fund” or “fund”) is a diversified, closed-end management investment company. The
fund commenced operations in September 2007 following an initial public offering.
The fund’s investment advisor is John Hancock Investment Management LLC (the “Advisor” or “JHIM”) and its subadvisor is Epoch Investment Partners,
Inc. (“Epoch”).
The fund’s investment objective is to provide total return consisting of a high level of current income and gains and long term capital appreciation. In
pursuing its investment objective of total return, the fund will seek to emphasize high current income. In pursuing its investment objective, the fund
seeks to achieve favorable after-tax returns for its shareholders by seeking to minimize the U.S. federal income tax consequences on income and gains
generated by the fund. There can be no assurance that the fund will achieve its investment objective. The fund’s investment objective is fundamental and
may not be changed without shareholder approval.
The fund may offer, from time to time, in one or more offerings, up to 1,000,000 of the fund’s common shares of beneficial interest, par value $0.01 per
share (“Common Shares”), on terms to be determined at the time of the offering. The Common Shares may be offered at prices and on terms to be set
forth in one or more Prospectus Supplements. You should read this Prospectus and the applicable Prospectus Supplement carefully before you invest in
Common Shares. Common Shares may be offered directly to one or more purchasers, through agents designated from time to time by the fund, or to or
through underwriters or dealers. The Prospectus Supplement relating to the offering will identify any agents, underwriters or dealers involved in the
offer or sale of Common Shares, and will set forth any applicable offering price, sales load, fee, commission or discount arrangement between the fund
and its agents or underwriters, or among its underwriters, or the basis upon which such amount may be calculated, net proceeds and use of proceeds,
and the terms of any sale. See “Plan of Distribution.” The fund may not sell any Common Shares through agents, underwriters or dealers without delivery
of a Prospectus Supplement describing the method and terms of the particular offering of Common Shares.
The fund’s currently outstanding Common Shares are listed on the New York Stock Exchange (“NYSE”) under the symbol “HTY.” Any new Common Shares
offered and sold hereby will be listed on the NYSE and trade under this symbol. As of February 14, 2024, the last reported sale price for the Common
Shares was $5.05.
Under normal market conditions, the fund invests at least 80% of its total assets in a diversified portfolio of dividend-paying securities of issuers located
throughout the world. This policy is subject to the requirement that the manager believes at the time of investment that such securities are eligible to
pay tax-advantaged dividends. The fund seeks to produce superior, risk-adjusted returns by using a disciplined, proprietary investment approach that is
focused on identifying companies with strong free cash flow and that use their free cash flow to seek to maximize “shareholder yield” through dividend
payments, stock repurchases and debt reduction. By assembling a diversified portfolio of securities which, in the aggregate, possess positive growth of
free cash flow, high cash dividend yields, share buyback programs and net debt reductions, the fund seeks to provide shareholders an attractive total
return with less volatility than the global equity market as a whole. “Free cash flow” is the cash available for distribution to investors after all planned
capital investment and taxes. The Advisor believes that free cash flow is important because it allows a company to pursue opportunities that enhance
shareholder value.
The fund’s investments in securities of U.S. and non-U.S. issuers are expected to vary over time. Under normal market conditions, the fund invests at
least 40% of its total assets in securities of non-U.S. issuers, unless the manager deems market conditions and/or company valuations to be less
favorable to non-U.S. issuers, in which case, the fund will invest at least 30% of its total assets in non-U.S. issuers. The fund may invest up to 20% of its
total assets in securities issued by companies located in emerging markets when Epoch, the fund’s subadvisor, believes such companies offer attractive
opportunities. Securities held by the fund may be denominated in both U.S. dollars and non-U.S. currencies. Under normal conditions, the fund invests
in the securities of issuers located in at least three different countries, including the United States, and the actual number of countries represented in
the fund’s portfolio will vary over time. As of the end of the last fiscal year, 10 countries were represented in the fund’s portfolio. The fund may not invest
more than 25% of its total assets in the securities of issuers in any single industry or group of related industries. The fund may trade securities actively
and may engage in short-term trading strategies.
On an overall basis, the fund seeks to implement an investment strategy designed to minimize the U.S. federal income tax consequences on income and
gains generated by the fund. The fund seeks to accomplish this primarily by (i) investing in dividend-paying securities that are eligible to pay dividends
that qualify for U.S. federal income taxation at rates applicable to long-term capital gain (“tax-advantaged dividends”), and complying with the holding
period and other requirements for such favorable tax treatment; and (ii) offsetting any ordinary income and realized short-term capital gain against fund
expenses and realized short-term loss. In this regard, as discussed above, the fund’s policy described above of investing at least 80% of its total assets
in dividend-paying securities of issuers located throughout the world is subject to the requirement that Epoch believes at the time of investment that
such securities are eligible to pay tax-advantaged dividends.
The fund invests in global equity securities across a broad range of market capitalizations. The fund generally invests in companies with a market
capitalization (i.e., total market value of a company’s shares) of $500 million or greater at the time of purchase. The Advisor has engaged Epoch to
serve as subadvisor to the fund. Epoch is responsible for the day-to-day management of the fund’s portfolio investments. Although the fund may invest in
securities of companies with any capitalization, it may at any given time invest a significant portion of its total assets in companies of one particular
market capitalization category when Epoch believes such companies offer attractive opportunities. Epoch seeks to produce superior, risk-adjusted
returns by investing in businesses with outstanding risk/reward profiles and a focus on high “shareholder yield.” Shareholder yield refers to the
collective financial impact on shareholders from the return of free cash flow through cash dividends, stock repurchases and debt reduction. By
assembling a diversified portfolio of securities with these qualities, Epoch believes fund investors will have the opportunity to realize an attractive total
return with less volatility than the global equity market as a whole.
Epoch seeks to produce an efficient portfolio on a risk/return basis with a dividend yield that exceeds the dividend yield of the MSCI World Index. The
MSCI World Index captures large- and mid- cap representation across 23 developed market countries. With approximately 1,511 constituents, the
index covers approximately 85% of the free float-adjusted market capitalization in each country as of October 31, 2023. In selecting securities for the
fund, Epoch utilizes an investment strategy that combines bottom-up stock research and selection with top-down analysis. Epoch looks for companies it
believes have solid long-term prospects, attractive valuation comparisons and adequate market liquidity. The equity securities Epoch finds attractive
generally have valuations lower than Epoch’s estimate of their fundamental value, as reflected in price-to-cash flow, price-to-book ratios or other stock
valuation measures.
In selecting securities for the fund’s portfolio, Epoch focuses on dividend-paying common stocks and to a lesser extent preferred securities that produce
an attractive level of tax-advantaged income. Epoch also considers an equity security’s potential for capital appreciation. Epoch generally uses a value
approach in selecting the fund’s equity investments. Epoch evaluates an equity security’s potential value, including the attractiveness of its market
valuation, based on the company’s assets and prospects for earnings growth. Investment decisions are made primarily on the basis of fundamental
research. Epoch relies upon information provided by, and the expertise of, Epoch’s research staff in making investment decisions. In selecting equity
securities, Epoch considers (among other factors) a company’s cash flow capabilities, dividend prospects and the anticipated U.S. federal income tax
treatment of a company’s dividends, the strength of the company’s business franchises and estimates of the company’s net value.
Epoch sells or reduces a position in a security when it sees the goals of its investment thesis failing to materialize, or when it believes those goals have
been met and the valuation of the company’s shares fully reflect the opportunities once thought unrecognized in share price. The reasons for a
determination by Epoch that such goals are not being met include: the economic or competitive environment might be changing; company
management’s execution could be disappointing; or in certain cases, management proves to be less than forthright or have an inappropriate
assessment of the company’s state and the task at hand.
The fund may seek to enhance the level of dividend income it receives by engaging in dividend capture trading. In a dividend capture trade, the fund sells
a security after having held the security long enough to satisfy the holding period requirements for tax-advantaged dividends, but shortly after the
security’s ex-dividend date. The fund then uses the sale proceeds to purchase one or more other securities that are expected to pay dividends before the
next dividend payment date on the security being sold. Through this practice, the fund may receive more dividend payments over a given period of time
than if it held a single security. Receipt of a greater number of dividend payments during a given time period could augment the total amount of dividend
income received by the fund. See “Investment Strategies—Equity Strategy.”
. Under normal market conditions, the fund invests primarily in a diversified portfolio of dividend-paying securities of issuers
located throughout the world that Epoch believes at the time of investment are eligible to pay tax-advantaged dividends.
Tax-advantaged dividends generally include dividends from U.S. and non-U.S. corporations that meet certain specified criteria. The fund generally can
pass the tax treatment of tax-advantaged dividends it receives through to its holders of Common Shares (the “Common Shareholders”). For the fund to
receive tax-advantaged dividends, the fund must, in addition to other requirements, hold the otherwise qualified security for more than 60 days during
the 121-day period beginning 60 days before the ex-dividend date (or, in the case of a preferred security, more than 90 days during the 181-day period
beginning 90 days before the ex-dividend date). The “ex-dividend date” is the date that is established by a stock exchange (usually two business days
before the record date) whereby the owner of a security at the commencement of such date is entitled to receive the next issued dividend payment for
such security, even if the security is sold by such owner on the ex-dividend date or thereafter. In addition, the fund cannot be obligated to make
payments (pursuant to a short sale or otherwise) with respect to substantially similar or related property. For a Common Shareholder to be taxed at the
long-term capital gain rates, the Common Shareholder must hold his or her Common Shares for more than 60 days during the 121-day period
beginning 60 days before the ex-dividend date. Consequently, short-term investors in the fund will not realize the benefits of tax-advantaged dividends.
There can be no assurance as to the portion of the fund’s dividends that will be tax-advantaged. Although the fund invests at least 80% of its assets in
equity securities that pay tax-advantaged dividends and to satisfy the holding period and other requirements, a portion of the fund’s income
distributions may be taxable as ordinary income (i.e., income other than tax-advantaged dividends).
The foregoing policies relating to investments in equity securities are the fund’s primary investment policies. In addition to its primary investment
policies, the fund may invest to a limited extent in other types of securities and engage in certain other investment practices. The fund may use a variety
of derivative instruments (including long and short positions) for hedging purposes, to adjust portfolio characteristics or more generally for purposes of
attempting to increase the fund’s investment return, including put and call options, options on futures contracts, futures and forward contracts and
swap agreements (including total return swaps) with respect to securities, indices and currencies. The fund may invest in securities of other open- and
closed-end investment companies, including exchange-traded funds, to the extent that such investments are consistent with the fund’s investment
objective and policies and permissible under the Investment Company Act of 1940, as amended (the “1940 Act”). The fund may lend its portfolio
securities. The fund may invest in debt securities, including below investment-grade debt securities (also known as “junk bonds”). See “Investment
Strategies.” Normally, the fund invests substantially all of its total assets to meet its investment objective. The fund may invest the remainder of its
assets in other equity securities and fixed-income securities with remaining maturities of less than one year or cash equivalents, or it may hold cash. For
temporary defensive purposes, the fund may depart from its principal investment strategies and invest part or all of its total assets in fixed-income
securities with remaining maturities of less than one year, or cash or cash equivalents. During such periods, the fund may not be able to achieve its
investment objective.
Investment Advisor and Subadvisor
JHIM, the fund’s investment advisor, is an indirect principally owned subsidiary of and subadvisor Manulife Financial Corporation. The Advisor is
responsible for overseeing the management of the fund, including its day-to-day business operations and monitoring Epoch. As of December 31, 2023,
the Advisor had total assets under management of approximately $153.7 billion.
Epoch, the subadvisor to the fund, handles the fund’s portfolio management activities, subject to oversight by the Advisor. Epoch, founded in 2004, is a
wholly-owned subsidiary of The Toronto-Dominion Bank. As of December 31, 2023, Epoch managed on a worldwide basis approximately $34.3 billion.
The Advisor also engaged its affiliate Manulife Investment Management (North America) Limited (formerly, John Hancock Asset Management a division
of Manulife Asset Management (North America) Limited) to consult from time to time with the Advisor on matters relating to the general application of
U.S. federal income tax laws and regulations, compliance and legal issues.
See “Management of the Fund—The Advisor” and “—The Subadvisor.”
The fund makes regular quarterly distributions to Common Shareholders which may consist of the fund’s cash available for distribution and return of
capital. “Cash available for distribution” consists of the fund’s (i) investment company taxable income, which includes among other things, dividend and
ordinary income after payment of fund expenses, the excess of net short-term capital gain over net long-term capital loss, and income from certain
hedging and interest rate transactions, (ii) qualified dividend income and (iii) long-term capital gain (gain from the sale of capital assets held longer than
one year). The Board of Trustees of the fund (the “Board”) may modify this distribution policy at any time without obtaining the approval of Common
Shareholders.
Pursuant to the requirements of the 1940 Act, in the event the fund makes distributions from sources other than income, a notice will accompany each
quarterly distribution with respect to the estimated sources of the distribution made. Such notices will describe the portion, if any, of the quarterly
dividend which, in the fund’s good faith judgment, constitutes long-term capital gain, short-term capital gain, investment company taxable income or a
return of capital. The actual character of such dividend distributions for U.S. federal income tax purposes, however, will only be determined finally by the
fund at the close of its fiscal year, based on the fund’s full year performance and its actual net investment company taxable income and net capital gain
for the year, which may result in a recharacterization of amounts distributed during such fiscal year from the characterization in the quarterly estimates.
If, for any calendar year, as discussed above, the total distributions made exceed the fund’s current and accumulated earnings and profits, the excess
generally will be treated as a return of capital to each Common Shareholder (up to the amount of the Common Shareholder’s basis in his or her Common
Shares) and thereafter as gain from the sale of Common Shares. In each fiscal year the fund has paid distributions, the fund’s total distributions
exceeded the fund’s current and accumulated earnings and profits, and such excess was treated as a return of capital to each Common Shareholder.
The amount treated as a return of capital reduces the Common Shareholder’s adjusted basis in his or her Common Shares, thereby increasing his or her
potential gain or reducing his or her potential loss on the subsequent sale of his or her Common Shares. Distributions in any year may include a
substantial return of capital component. To permit the fund to maintain more stable distributions, distribution rates are based on projected annual cash
available for distribution and return of capital. As a result, the distributions paid by the fund for any particular quarter may be more or less than the
amount of cash available for distribution from that quarterly period. In certain circumstances, the fund may be required to sell a portion of its
investment portfolio to fund distributions. Distributions will reduce the Common Shares’ net asset value (“NAV”).
The 1940 Act currently limits the number of times the fund may distribute long-term capital gain in any tax year, which may increase the variability of
the fund’s distributions and result in certain distributions being comprised more heavily of long-term capital gain eligible for favorable income tax rates.
In the future, the Advisor may seek Board approval to implement a managed distribution plan for the fund. The managed distribution plan would be
implemented pursuant to an exemptive order previously granted by the Securities and Exchange Commission (the “SEC”), which provides an exemption
from Section 19(b) of the 1940 Act and Rule 19b-1 thereunder to permit the fund to include long-term capital gain as a part of its regular distributions
to Common Shareholders more frequently than would otherwise be permitted by the 1940 Act (generally once or twice per year). If the fund implements
a managed distribution plan, it would do so without a vote of the Common Shareholders.
Dividend Reinvestment Plan
The fund has established an automatic dividend reinvestment plan (the “Plan”). Under the Plan, distributions of dividends and capital gains are
automatically reinvested in Common Shares of the fund by Computershare Trust Company, N.A. Every shareholder holding at least one full share of the
fund will be automatically enrolled in the Plan. Shareholders who do not participate in the Plan will receive all distributions in cash. Common
Shareholders who intend to hold their Common Shares through a broker or nominee should contact such broker or nominee regarding the Plan. See
“Dividend Reinvestment Plan.”
Closed-End Fund Structure
Closed-end funds differ from open-end management investment companies (which generally are referred to as “mutual funds”) in that closed-end funds
generally list their shares for trading on a securities exchange and do not redeem their shares at the option of the shareholder. Mutual funds do not
trade on securities exchanges and issue securities redeemable at the option of the shareholder. The continuous outflows of assets in a mutual fund can
make it difficult to manage the fund’s investments. Closed-end funds generally are able to stay more fully invested in securities that are consistent with
their investment objectives and also have greater flexibility to make certain types of investments and to use certain investment strategies, such as
financial leverage and investments in illiquid securities. Although the fund has no current intention to do so, the fund is authorized and reserves the
flexibility to utilize leverage through borrowings and/or the issuance of preferred shares, including the issuance of debt securities. The Common Shares
are designed primarily for long-term investors; you should not purchase Common Shares if you intend to sell them shortly after purchase.
Common shares of closed-end funds frequently trade at prices lower than their NAV. Since inception, the market price of the Common Shares has
fluctuated and at times has traded below the fund’s NAV and at times has traded above the fund’s NAV. The fund cannot predict whether in the future the
Common Shares will trade at, above or below NAV. In addition to NAV, the market price of the Common Shares may be affected by such factors as the
fund’s dividend stability, dividend levels, which are in turn affected by expenses, and market supply and demand.
In recognition of the possibility that the Common Shares may trade at a discount from their NAV, and that any such discount may not be in the best
interest of Common Shareholders, the Board, in consultation with the Advisor, from time to time may review possible actions to reduce any such
discount. There can be no assurance that the Board will decide to undertake any of these actions or that, if undertaken, such actions would result in the
Common Shares trading at a price equal to or close to NAV per Common Share. In the event that the fund conducts an offering of new Common Shares
and such offering constitutes a “distribution” under Regulation M, the fund and certain of its affiliates may be subject to an applicable restricted period
that could limit the timing of any repurchases by the fund.
The fund’s principal risk factors are listed below by general risks, and equity strategy risks. The fund’s main risks are listed below in alphabetical order,
not in order of importance. Before investing, be sure to read the additional descriptions of these risks beginning on page
21
of this Prospectus.
Anti-takeover Provisions.
The fund’s Declaration of Trust includes provisions that could limit the ability of other persons or entities to acquire control
of the fund or to change the composition of its Board. These provisions may deprive shareholders of opportunities to sell their Common Shares at a
premium over the then current market price of the Common Shares. See “Certain Provisions in the Declaration of Trust and By-Laws—Anti-takeover
provisions.”
Defensive Positions Risk.
During periods of adverse market or economic conditions, the fund may temporarily invest all or a substantial portion of its
total assets in short-term money market instruments, securities with remaining maturities of less than one year, cash or cash equivalents. The fund will
not be pursuing its investment objective in these circumstances and could miss favorable market developments.
There can be no assurance that quarterly distributions paid by the fund to shareholders will be maintained at current levels or
increase over time. The quarterly distributions shareholders receive from the fund are derived from the fund’s dividends and interest income after
payment of fund expenses. The fund’s cash available for distribution may vary widely over the short- and long-term. If, for any calendar year, the total
distributions made exceed the fund’s net investment taxable income and net capital gain, the excess generally will be treated as a return of capital to
each Common Shareholder (up to the amount of the Common Shareholder’s basis in his or her Common Shares) and thereafter as gain from the sale of
Common Shares. The amount treated as a return of capital reduces the Common Shareholder’s adjusted basis in his or her Common Shares, thereby
increasing his or her potential gain or reducing his or her potential loss on the subsequent sale of his or her Common Shares. Distributions in any year
may include a substantial return of capital component.
Economic and market events risk.
Events in the U.S. and global financial markets, including actions taken by the U.S. Federal Reserve or foreign
central banks to stimulate or stabilize economic growth, may at times result in unusually high market volatility, which could negatively impact
performance. Reduced liquidity in credit and fixed-income markets could adversely affect issuers worldwide. Banks and financial services companies
could suffer losses if interest rates rise or economic conditions deteriorate.
Although the fund has no current intention to do so, the fund is authorized and reserves the flexibility to utilize leverage through
borrowings and/or the issuance of preferred shares, including the issuance of debt securities. In the event that the fund determines in the future to use
investment leverage, there can be no assurance that such a leveraging strategy will be successful during any period in which it is employed. Leverage
creates risks for Common Shareholders, including the likelihood of greater volatility of the NAV and market price of the Common Shares and the risk
that fluctuations in distribution rates on any preferred shares or fluctuations in borrowing costs may affect the return to Common Shareholders. To the
extent the returns derived from securities purchased with proceeds received from leverage exceeds the cost of leverage, the fund’s distributions may be
greater than if leverage had not been used. Conversely, if the returns from the securities purchased with such proceeds are not sufficient to cover the
cost of leverage, the amount available for distribution to Common Shareholders will be less than if leverage had not been used. In the latter case, the
Advisor, in its best judgment, may nevertheless determine to maintain the fund’s leveraged position if it deems such action to be appropriate. The costs
of an offering of preferred shares and/or a borrowing program would be borne by Common Shareholders and consequently would result in a reduction
of the NAV of Common Shares. In addition, the fee paid to the Advisor is calculated on the basis of the fund’s average daily gross assets, including
proceeds from borrowings and/or the issuance of preferred shares, so the fee will be higher when leverage is utilized, which may create an incentive for
the Advisor to employ financial leverage.
LIBOR discontinuation risk.
The official publication of the London Interbank Offered Rate (LIBOR), which many debt securities, derivatives and other
financial instruments traditionally utilized as the reference or benchmark rate for interest rate calculations, was discontinued as of June 30, 2023.
However, a subset of British pound sterling and U.S. dollar LIBOR settings will continue to be published on a “synthetic” basis. The synthetic publication
of the three-month sterling LIBOR will continue until March 31, 2024, and the publication of the one-, three- and six-month U.S. dollar LIBOR will
continue until September 30, 2024. The discontinuation of LIBOR and a transition to replacement rates may lead to volatility and illiquidity in markets
and may adversely affect the fund’s performance.
The fund’s Common Shares will be offered only when Common Shares of the fund are trading at a price equal to or above the
fund’s NAV per Common Share plus the per Common Share amount of commissions. As with any security, the market value of the Common Shares may
increase or decrease from the amount initially paid for the Common Shares. The fund’s Common Shares have traded at both a premium and at a
discount to NAV. The shares of closed-end management investment companies frequently trade at a discount from their NAV. This characteristic is a risk
separate and distinct from the risk that the fund’s NAV could decrease as a result of investment activities. Investors bear a risk of loss to the extent that
the price at which they sell their shares is lower in relation to the fund’s NAV than at the time of purchase, assuming a stable NAV.
Operational and cybersecurity risk.
Cybersecurity breaches may allow an unauthorized party to gain access to fund assets, customer data, or
proprietary information, or cause a fund or its service providers to suffer data corruption or lose operational functionality. Similar incidents affecting
issuers of a fund’s securities may negatively impact performance. Operational risk may arise from human error, error by third parties, communication
errors, or technology failures, among other causes.
The fund may engage in short-term trading strategies, and securities may be sold without regard to the length of time held
when, in the opinion of Epoch, investment considerations warrant such action. In addition, the fund’s dividend capture program also may increase the
level of portfolio turnover the fund experiences. These policies may have the effect of increasing the annual rate of portfolio turnover of the fund. Higher
rates of portfolio turnover likely would result in higher brokerage commissions and may generate short-term capital gain taxable as ordinary income,
which may have a negative impact on the fund’s performance over time. The portfolio turnover rate of the fund may vary from year to year, as well as
within a year.
Secondary Market for the Common Shares.
The issuance of new Common Shares may have an adverse effect on the secondary market for the
Common Shares. When Common Shares are trading at a premium, the fund may issue new Common Shares of the fund. The increase in the amount of
the fund’s outstanding Common Shares resulting from the offering of new Common Shares may put downward pressure on the market price for the
Common Shares of the fund. Common Shares will not be issued at any time when Common Shares are trading at a price lower than a price equal to the
fund’s NAV per Common Share plus the per Common Share amount of commissions.
The fund also issues Common Shares through its dividend reinvestment plan. Common Shares may be issued under the plan at a discount to the market
price for such Common Shares, which may put downward pressure on the market price for Common Shares of the fund.
The voting power of current Common Shareholders will be diluted to the extent that such shareholders do not purchase shares in any future Common
Share offerings or do not purchase sufficient shares to maintain their percentage interest. In addition, if the proceeds of such offering are unable to be
invested as intended, the fund’s per Common Share distribution may decrease (or may consist of return of capital) and the fund may not participate in
market advances to the same extent as if such proceeds were fully invested as planned.
To qualify for the special tax treatment available to regulated investment companies, the fund must: (i) derive at least 90% of its annual gross
income from certain kinds of investment income; (ii) meet certain asset diversification requirements at the end of each quarter; and (iii) distribute in
each taxable year at least 90% of its net investment income (including net interest income and net short-term capital gain). If the fund failed to meet any
of these requirements, subject to the opportunity to cure such failures under applicable provisions of the Internal Revenue Code of 1986, as amended
(the “Code”), the fund would be subject to U.S. federal income tax at regular corporate rates on its taxable income, including its net capital gain, even if
such income were distributed to its shareholders. All distributions by the fund from earnings and profits, including distributions of net capital gain (if
any), would be taxable to the shareholders as ordinary income. To the extent designated by the fund, such distributions generally would be eligible (i) to
be treated as qualified dividend income in the case of individual and other non-corporate shareholders and (ii) for the dividends received deduction in
the case of corporate shareholders, provided that in each case the shareholder meets applicable holding period requirements. In addition, in order to
requalify for taxation as a regulated investment company, the fund might be required to recognize unrealized gain, pay substantial taxes and interest,
and make certain distributions. See “U.S. Federal Income Tax Matters.”
The tax treatment and characterization of the fund’s distributions may vary significantly from time to time due to the nature of the fund’s investments.
The ultimate tax characterization of the fund’s distributions in a calendar year may not finally be determined until after the end of that calendar year. The
fund may make distributions during a calendar year that exceed the fund’s net investment income and net realized capital gain for that year. In such a
situation, the amount by which the fund’s total distributions exceed net investment income and net realized capital gain generally would be treated as a
return of capital up to the amount of the Common Shareholder’s tax basis in his or her Common Shares, with any amounts exceeding such basis treated
as gain from the sale of his or her Common Shares. The fund’s income distributions that qualify for favorable tax treatment may be affected by Internal
Revenue Service (“IRS”) interpretations of the Code and future changes in tax laws and regulations all of which may apply with retroactive effect. See
“U.S. Federal Income Tax Matters.”
No assurance can be given as to what percentage of the distributions paid on the Common Shares, if any, will consist of long-term capital gain or what
the tax rates on various types of income will be in future years.
Common Stock and Other Equity Securities Risk.
The fund invests primarily in common stocks, and to a lesser extent in preferred securities.
Common stock, preferred securities and other equity securities represent equity ownership in a company. Common stocks and similar equity securities
are more volatile and more risky than some other forms of investment. The price of equity securities will fluctuate, and can decline and reduce the value
of the fund. Therefore, the value of your investment in the fund may fluctuate and may be worth less than your initial investment. 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 the fund could decline if the financial condition of the companies in which the fund invests declines, or if overall market and economic
conditions deteriorate. Even if the fund invests in high-quality or “blue chip” equity securities, or securities of established companies with large market
capitalizations (which generally have strong financial characteristics), the fund can be negatively impacted by poor overall market and economic
conditions.
The fund also may invest in securities that can be exercised for or converted into common stocks (such as convertible preferred securities). Because
convertible securities can be converted into equity securities, their values normally will increase or decrease as the values of the underlying equity
securities increase or decrease.
The fund maintains substantial exposure to equities and generally does not attempt to time the market. Because of this exposure, the possibility that
stock market prices in general will decline over short or extended periods subjects the fund to unpredictable declines in the value of its investments, as
well as periods of poor performance. In addition, common stock prices may be sensitive to rising interest rates, as the costs of capital rise for issuers.
Epoch may not be able to anticipate the level of dividends that companies will pay in any given timeframe. In accordance with
the fund’s strategies, Epoch attempts to identify and take advantage of opportunities such as the announcement of major corporate actions that may
lead to high current dividend income. These situations typically are non-recurring or infrequent, may be difficult to predict and may not result in an
opportunity that allows Epoch to fulfill the fund’s investment objective. In addition, the dividend policies of the fund’s target companies are heavily
influenced by the current economic climate and the favorable U.S. federal tax treatment afforded to dividends.
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.
Illiquid and Restricted Securities Risk.
Restricted securities are securities with restrictions on public resale, such as securities offered in
accordance with an exemption under Rule 144A under the Securities Act of 1933 (the “1933 Act”), or commercial paper issued under Section 4(a)(2)
of the 1933 Act. Restricted securities are often required to be sold in private sales to institutional buyers, markets for restricted securities may or may
not be well developed, and restricted securities can be illiquid. Illiquid and restricted securities may be difficult to value and may involve greater risks
than liquid securities. Illiquidity may have an adverse impact on a particular security’s market price and the fund’s ability to sell the security. The fund
may invest up to 15% of its net assets in securities for which there is no readily available trading market or which are otherwise illiquid. The extent (if at
all) to which a security may be sold or a derivative position closed without negatively impacting its market value may be impaired by reduced market
activity or participation, legal restrictions, or other economic and market impediments. Liquidity risk may be magnified in rising interest rate
environments due to higher than normal redemption rates. Widespread selling of fixed-income securities to satisfy redemptions during periods of
reduced demand may adversely impact the price or salability of such securities. Periods of heavy redemption could cause the fund to sell assets at a
loss or depressed value, which could negatively affect performance. Redemption risk is heightened during periods of declining or illiquid markets. Any
depositary receipts are subject to most of the risks associated with investing in foreign securities directly because the value of a depositary receipt is
dependent upon the market price of the underlying foreign equity security. Depositary receipts are also subject to liquidity risk.
Larger companies may grow more slowly than smaller companies or be slower to respond to business developments.
Large-capitalization securities may underperform the market as a whole.
Non-U.S. Investment Risk.
As compared to U.S. companies, less information may be publicly available regarding foreign issuers. Non-U.S. securities
may be subject to foreign taxes and may be more volatile than U.S. securities. Currency fluctuations and political and economic developments may
adversely impact the value of foreign securities. If applicable, depository receipts are subject to most of the risks associated with investing in foreign
securities directly because the value of a depository receipt is dependent upon the market price of the underlying foreign equity security. Depository
receipts are also subject to liquidity risk. Investments in emerging-market countries are subject to greater levels of non-U.S. investment risk.
Repurchase agreement risk.
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 the 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.
The 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 fund. 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.
The 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 subadvisor 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.
Small and mid-sized company risk.
Small and mid-sized companies are generally less established and may be more volatile than larger companies.
Small and/or mid-capitalization securities may underperform the market as a whole.
Given the risks described above, an investment in Common Shares may not be appropriate for all investors. You should carefully
consider your ability to assume these risks before making an investment in the fund.
The purpose of the table below is to help you understand all fees and expenses that you, as a Common Shareholder, would bear directly or indirectly. In
accordance with SEC requirements, the table below shows the fund’s expenses as a percentage of its average net assets as of October 31, 2023, and
not as a percentage of total assets. By showing expenses as a percentage of average net assets, expenses are not expressed as a percentage of all of
the assets in which the fund invests. The offering costs to be paid or reimbursed by the fund are not included in the Annual Expenses table below.
However, these expenses will be borne by Common Shareholders and may result in a reduction in the NAV of the Common Shares. See “Management of
the Fund” and “Dividend Reinvestment Plan.” The table and example are based on the fund’s capital structure as of October 31, 2023.
Shareholder Transaction Expenses (%) | |
Sales load (as a percentage of offering price) 1 | |
Offering expenses (as a percentage of offering price) 1 | |
Dividend Reinvestment Plan fees 2 | |
Annual Expenses (Percentage of Net Assets Attributable to Common Shares) (%) | |
| |
| |
Total Annual Operating Expenses | |
Contractual expense reimbursement 3 | |
Total annual fund operating expenses after expense reimbursements | |
If Common Shares are sold to or through underwriters, the Prospectus Supplement will set forth any applicable sales load and the estimated offering expenses.
Participants in the fund’s dividend reinvestment plan do not pay brokerage charges with respect to Common Shares issued directly by the fund. However, whenever
Common Shares are purchased or sold on the NYSE or otherwise on the open market, each participant will pay a pro rata portion of brokerage trading fees, currently
$0.05 per share purchased or sold. Brokerage trading fees will be deducted from amounts to be invested. Shareholders participating in the Plan may buy additional
Common Shares of the fund through the Plan at any time and will be charged a $5 transaction fee plus $0.05 per share brokerage trading fee for each order. See
“Distribution Policy” and “Dividend Reinvestment Plan” in the accompanying Prospectus.
The Advisor contractually agrees to waive a portion of its management fee and/or reimburse expenses for the fund and certain other John Hancock funds according to
an asset level breakpoint schedule that is based on the aggregate net assets of all the funds participating in the waiver or reimbursement, including the fund (the
participating portfolios). This waiver equals, on an annualized basis, 0.0100% of that portion of the aggregate net assets of all the participating portfolios that
exceeds $75 billion but is less than or equal to $125 billion; 0.0125% of that portion of the aggregate net assets of all the participating portfolios that exceeds
$125 billion but is less than or equal to $150 billion; 0.0150% of that portion of the aggregate net assets of all the participating portfolios that exceeds $150 billion
but is less than or equal to $175 billion; 0.0175% of that portion of the aggregate net assets of all the participating portfolios that exceeds $175 billion but is less
than or equal to $200 billion; 0.0200% of that portion of the aggregate net assets of all the participating portfolios that exceeds $200 billion but is less than or equal
to $225 billion; and 0.0225% of that portion of the aggregate net assets of all the participating portfolios that exceeds $225 billion. The amount of the
reimbursement is calculated daily and allocated among all the participating portfolios in proportion to the daily net assets of each participating portfolio. During its
most recent fiscal year, the fund’s reimbursement amounted to 0.01% of the fund’s average daily net assets. This agreement expires on July 31, 2025, unless renewed
by mutual agreement of the fund and the Advisor based upon a determination that this is appropriate under the circumstances at that time.
The following example illustrates the expenses that Common Shareholders would pay on a $1,000 investment in Common Shares, assuming (i) total
annual expenses set forth above, including any reimbursements through their current expiration date; (ii) a 5% annual return; and (iii) all distributions
are reinvested at NAV:
The above table and example and the assumption in the example of a 5% annual return are required by regulations of the SEC that are applicable to all
investment companies; the assumed 5% annual return is not a prediction of, and does not represent, the projected or actual performance of the
Common Shares. For more complete descriptions of certain of the fund’s costs and expenses, see “Management of the fund”. In addition, while the
example assumes reinvestment of all dividends and distributions at NAV, participants in the fund’s dividend reinvestment plan may receive Common
Shares purchased or issued at a price or value different from NAV. See “Distribution Policy” and “Dividend Reinvestment Plan.” The example does not
include sales load or estimated offering costs, which would cause the expenses shown in the example to increase.
The example should not be considered a representation of past or future expenses, and the fund’s actual expenses may be greater or less
than those shown. Moreover, the fund’s actual rate of return may be greater or less than the hypothetical 5% return shown in the
This table details the financial performance of the Common Shares, including total return information showing how much an investment in the fund has
increased or decreased each period (assuming reinvestment of all dividends and distributions).
The financial statements of the fund as of October 31, 2023, 2022, 2021, 2020, and 2019 have been audited by PricewaterhouseCoopers LLP
(“PwC”), the fund’s independent registered public accounting firm. The report of PwC, along with the fund’s financial statements in the fund’s annual
report for the fiscal period ended October 31, 2023, has been incorporated by reference into the SAI. Copies of the fund’s most recent annual and
semi-annual reports are available upon request.
| | | | | |
Per share operating performance | | | | | |
Net asset value, beginning of period | | | | | |
| | | | | |
Net realized and unrealized gain (loss) on investments | | | | | |
Total from investment operations | | | | | |
| | | | | |
From net investment income | | | | | |
From tax return of capital | | | | | |
| | | | | |
Anti-dilutive impact of repurchase plan | | | | | |
Net asset value, end of period | | | | | |
Per share market value, end of period | | | | | |
Total return at net asset value (%) | | | | | |
Total return at market value (%) | | | | | |
Ratios and supplemental data | | | | | |
Net assets, end of period (in millions) | | | | | |
Ratios (as a percentage of average net assets): | | | | | |
Expenses before reductions | | | | | |
Expenses including reductions | | | | | |
| | | | | |
| | | | | |
Based on average daily shares outstanding.
Less than $0.005 per share.
The repurchase plan was completed at an average repurchase price of $6.97 for 24,933 shares and $6.80 for 106,001 shares for the periods ended 10-31-20 and
10-31-19, respectively.
Total return based on net asset value reflects changes in the fund’s net asset value during each period. Total return based on market value reflects changes in market
value. Each figure assumes that distributions from income, capital gains and tax return of capital, if any, were reinvested.
Total returns would have been lower had certain expenses not been reduced during the applicable periods.
| | | | | |
Per share operating performance | | | | | |
Net asset value, beginning of period | | | | | |
| | | | | |
Net realized and unrealized gain (loss) on investments | | | | | |
Total from investment operations | | | | | |
| | | | | |
From net investment income | | | | | |
From tax return of capital | | | | | |
| | | | | |
Anti-dilutive impact of shelf offering | | | | | |
Net asset value, end of period | | | | | |
Per share market value, end of period | | | | | |
Total return at net asset value (%) | | | | | |
Total return at market value (%) | | | | | |
Ratios and supplemental data | | | | | |
Net assets, end of period (in millions) | | | | | |
Ratios (as a percentage of average net assets): | | | | | |
Expenses before reductions | | | | | |
Expenses including reductions | | | | | |
| | | | | |
| | | | | |
Based on average daily shares outstanding.
Total return based on net asset value reflects changes in the fund’s net asset value during each period. Total return based on market value reflects changes in market
value. Each figure assumes that distributions from income, capital gains and tax return of capital, if any, were reinvested.
Total returns would have been lower had certain expenses not been reduced during the applicable periods.
Market and Net Asset Value Information
The fund’s currently outstanding Common Shares are listed on the New York Stock Exchange (“NYSE”) under the symbol “HTY” and commenced trading
on the NYSE on September 26, 2007.
The Common Shares have traded both at a premium and a discount to their net asset value (“NAV”). The fund cannot predict whether its shares will trade
in the future at a premium or discount to NAV. The provisions of the 1940 Act generally require that the public offering price of common shares (less any
underwriting commissions and discounts) must equal or exceed the NAV per share of a company’s common stock (calculated within 48 hours of
pricing). The fund’s issuance of Common Shares may have an adverse effect on prices in the secondary market for Common Shares by increasing the
number of Common Shares available, which may put downward pressure on the market price for Common Shares. Shares of common stock of
closed-end investment companies frequently trade at a discount from NAV. See “Risk Factors—General Risks—Market Discount Risk” and “—Secondary
Market for the Common Shares.”
The following table sets forth for each of the periods indicated the high and low closing market prices for Common Shares on the NYSE, and the
corresponding NAV per share and the premium or discount to NAV per share at which the Common Shares were trading as of such date. NAV is
determined once daily as of the close of regular trading of the NYSE (typically 4:00
p.m.
, Eastern Time). See “Determination of Net Asset Value” for
information as to the determination of the fund’s NAV.
The last reported sale price, NAV per share and percentage premium to NAV per share of the Common Shares as of February 14, 2024 were $5.05,
$5.23 and -3.44%, respectively. As of February 14, 2024, the fund had 10,921,751 Common Shares outstanding and net assets of the fund were
$57,149,121.
The fund is a diversified, closed-end management investment company registered under the 1940 Act. The fund was organized on April 23, 2007 as a
Massachusetts business trust pursuant to an Agreement and Declaration of Trust (as amended and/or restated from time to time, the “Declaration of
Trust”). The fund commenced operations in September 2007 following an initial public offering. On September 25, 2007, the fund issued an aggregate
of 8,750,000 Common Shares of beneficial interest, par value $0.01 per share, pursuant to the initial public offering thereof. On November 14, 2007,
the fund issued an additional 600,000 Common Shares in connection with the exercise by the initial underwriters of an over-allotment option. The
fund’s principal office is located at 200 Berkeley Street, Boston, Massachusetts 02116 and its phone number is 800-225-6020.
The following provides information about the fund’s outstanding securities as of October 31, 2023.
Subject to the remainder of this section, and unless otherwise specified in a Prospectus Supplement, the fund currently intends to invest substantially
all of the net proceeds of any sales of Common Shares pursuant to this Prospectus in accordance with its investment objective and policies as described
under “Investment Objective” and “Investment Strategies” within three months of receipt of such proceeds. Such investments may be delayed up to
three months if suitable investments are unavailable at the time or for other reasons, such as market volatility or lack of liquidity in the markets of
suitable investments. Pending such investment, the fund anticipates that it will invest the proceeds in high-quality, short-term debt securities, cash
and/or cash equivalents. A delay in the anticipated use of proceeds could lower returns and reduce the fund’s distribution to Common Shareholders or
result in a distribution consisting in part or principally of a return of capital.
The fund’s investment objective is to provide total return consisting of a high level of current income and gains and long term
capital appreciation. In pursuing its investment objective of total return, the fund will seek to emphasize high current income. In pursuing its investment
objective, the fund seeks to achieve favorable after-tax returns for its shareholders by seeking to minimize the U.S. federal income tax consequences on
income and gains generated by the fund. There can be no assurance that the fund will achieve its investment objective. The fund’s investment objective
is fundamental and may not be changed without shareholder approval.
Principal investment strategies
Under normal market conditions, the fund invests at least 80% of its total assets in a diversified portfolio of dividend-paying securities of issuers located
throughout the world. This policy is subject to the requirement that the manager believes at the time of investment that such securities are eligible to
pay tax-advantaged dividends. The fund seeks to produce superior, risk-adjusted returns by using a disciplined, proprietary investment approach that is
focused on identifying companies with strong free cash flow and that use their free cash flow to seek to maximize “shareholder yield” through dividend
payments, stock repurchases and debt reduction. By assembling a diversified portfolio of securities which, in the aggregate, possess positive growth of
free cash flow, high cash dividend yields, share buyback programs and net debt reductions, the fund seeks to provide shareholders an attractive total
return with less volatility than the global equity market as a whole. “Free cash flow” is the cash available for distribution to investors after all planned
capital investment and taxes. The Advisor believes that free cash flow is important because it allows a company to pursue opportunities that enhance
shareholder value.
The fund’s investments in securities of U.S. and non-U.S. issuers are expected to vary over time. Under normal market conditions, the fund invests at
least 40% of its total assets in securities of non-U.S. issuers, unless the manager deems market conditions and/or company valuations to be less
favorable to non-U.S. issuers, in which case, the fund will invest at least 30% of its total assets in non-U.S. issuers. The fund may invest up to 20% of its
total assets in securities issued by companies located in emerging markets when Epoch, the fund’s subadvisor, believes such companies offer attractive
opportunities. Securities held by the fund may be denominated in both U.S. dollars and non-U.S. currencies. The fund may not invest more than 25% of
its total assets in the securities of issuers in any single industry or group of related industries. Under normal conditions, the fund invests in the
securities of issuers located in at least three different countries, including the United States. The actual number of countries represented in the fund’s
portfolio will vary over time and as of the end of the last fiscal year 10 countries were represented. The fund may trade securities actively and may
engage in short-term trading strategies.
On an overall basis, the fund seeks to implement an investment strategy designed to minimize the U.S. federal income tax consequences on income and
gain generated by the fund. The fund seeks to accomplish this primarily by (i) investing in dividend-paying securities that are eligible to pay dividends
that qualify for U.S. federal income taxation at rates applicable to long-term capital gain (“tax-advantaged dividends”), and complying with the holding
period and other requirements for such favorable tax treatment; and (ii) offsetting any ordinary income and realized short-term capital gain against fund
expenses and realized short-term loss. In this regard, as discussed above, the fund’s policy described above of investing at least 80% of its total assets
in dividend-paying securities of issuers located throughout the world is subject to the requirement that Epoch believes at the time of investment that
such securities are eligible to pay tax-advantaged dividends. This is a non-fundamental policy that may be changed by the Board without approval of the
Common Shareholders following the provision of 60 days’ prior written notice to Common Shareholders.
The fund invests in global equity securities across a broad range of market capitalizations. The fund generally invests in companies with a market
capitalization (i.e., total market value of a company’s shares) of $500 million or greater at the time of purchase. The Advisor has engaged Epoch to
serve as subadvisor to the fund. Epoch handles the fund’s portfolio management activities, subject to oversight by the Advisor. Although the fund may
invest in securities of companies with any capitalization, it may at any given time invest a significant portion of its total assets in companies of one
particular market capitalization category when Epoch believes such companies offer attractive opportunities. Epoch seeks to produce superior,
risk-adjusted returns by investing in businesses with outstanding risk/reward profiles and a focus on high “shareholder yield.” Shareholder yield refers to
the collective financial impact on shareholders from the return of free cash flow through cash dividends, stock repurchases and debt reduction. By
assembling a diversified portfolio of securities with these qualities, Epoch believes fund investors will have the opportunity to realize an attractive total
return with less volatility than the global equity market as a whole.
Epoch seeks to produce an efficient portfolio on a risk/return basis with a dividend yield that exceeds the dividend yield of the MSCI World Index.
The MSCI World Index captures large- and mid- cap representation across 23 developed market countries. With 1,511 constituents, the index covers
approximately 85% of the free float-adjusted market capitalization in each country as of December 31, 2023. In selecting securities for the fund, Epoch
utilizes an investment strategy that combines bottom-up stock research and selection with top-down analysis. Epoch looks for companies it believes
have solid long-term prospects, attractive valuation comparisons and adequate market liquidity. The equity securities that Epoch finds attractive
generally have valuations lower than Epoch’s estimate of their fundamental value, as reflected in price-to-cash flow, price-to-book ratios or other stock
valuation measures.
In selecting securities for the fund’s portfolio, Epoch focuses on dividend-paying common stocks and, to a lesser extent, preferred securities that
produce an attractive level of tax-advantaged income. Epoch also considers an equity security’s potential for capital appreciation. Epoch generally uses
a value approach in selecting the fund’s equity investments. Epoch evaluates an equity security’s potential value, including the attractiveness of its
market valuation, based on the company’s assets and prospects for earnings growth. Investment decisions are made primarily on the basis of
fundamental research. Epoch relies upon information provided by, and the expertise of, Epoch’s research staff in making investment decisions. In
selecting equity securities, Epoch considers (among other factors) a company’s cash flow capabilities, dividend prospects and the anticipated
U.S. federal income tax treatment of a company’s dividends, the strength of the company’s business franchises and estimates of the company’s net
value.
Epoch sells or reduces a position in a security when it sees the goals of its investment thesis failing to materialize, or when it believes those goals have
been met and the valuation of the company’s shares fully reflect the opportunities once thought unrecognized in share price. The reasons for a
determination by Epoch that such goals are not being met include: the economic or competitive environment might be changing; company
management’s execution could be disappointing; or in certain cases, management proves to be less than forthright or have an inappropriate
assessment of the company’s state and the task at hand.
Tax-advantaged dividends.
Under normal market conditions, the fund invests primarily in a diversified portfolio of dividend-paying securities of issuers
located throughout the world that Epoch believes at the time of investment are eligible to pay tax-advantaged dividends.
Tax-advantaged dividends generally include dividends from domestic corporations and dividends from foreign corporations that meet certain specified
criteria. The fund generally can pass the tax treatment of tax-advantaged dividends it receives through to its Common Shareholders. For the fund to
receive tax-advantaged dividends, the fund must, in addition to other requirements, hold the otherwise qualified security for more than 60 days during
the 121-day period beginning 60 days before the ex-dividend date (or, in the case of preferred securities, more than 90 days during the 181-day period
beginning 90 days before the ex-dividend date). The “ex-dividend date” is the date that is established by a stock exchange (usually two business days
before the record date) whereby the owner of a security at the commencement of such date is entitled to receive the next issued dividend payment for
such security, even if the security is sold by such owner on the ex-dividend date or thereafter. In addition, the fund cannot be obligated to make
payments (pursuant to a short sale or otherwise) with respect to substantially similar or related property. For a Common Shareholder to be taxed at the
long-term capital gain rates, the Common Shareholder must hold his or her Common Shares for more than 60 days during the 121-day period
beginning 60 days before the ex-dividend date. Consequently, short-term investors in the fund will not realize the benefits of tax-advantaged dividends.
There can be no assurance as to the portion of the fund’s dividends that will be tax-advantaged. Although the fund intends to invest at least 80% of its
assets in equity securities that pay tax-advantaged dividends and to satisfy the holding period and other requirements, a portion of the fund’s income
distributions may be taxable as ordinary income (i.e., income other than tax-advantaged dividends).
Dividend capture strategy.
The fund may seek to enhance the level of dividend income it receives by engaging in dividend capture trading. In a dividend
capture trade, the fund sells a security after having held the security long enough to satisfy the holding period requirements for tax-advantaged
dividends, but shortly after the security’s ex-dividend date. The fund then uses the sale proceeds to purchase one or more other securities that are
expected to pay dividends before the next dividend payment date on the security being sold. Through this practice, the fund may receive more dividend
payments over a given period of time than if it held a single security. Receipt of a greater number of dividend payments during a given time period could
augment the total amount of dividend income received by the fund. For example, during the course of a single year, it may be possible through dividend
capture trading for the fund to receive five or more dividend payments on different securities which have been held for the requisite holding period to
qualify as a tax-advantaged dividend, whereas it may only have received four payments in a hold strategy. The use of dividend capture strategies will
expose the fund to increased trading costs and the potential for recognizing short-term capital gain or loss on the sale of a security. Also, any net
short-term capital gain recognized by the fund and distributed to shareholders will be taxed to individual shareholders at ordinary U.S. federal income
tax rates, whereas if the fund held the security for more than one year, any gain recognized on the sale of the security and distributed to shareholders
would be taxable to individual shareholders at U.S. federal long-term capital gain rates. Consequently, Epoch employs dividend capture trading as a
strategy in an attempt to produce a positive net effect on the fund’s total after-tax return. By complying with applicable holding period and other
requirements while engaging in dividend capture trading, the fund may be able to enhance the level of tax-advantaged dividend income it receives
because it will receive more dividend payments qualifying for favorable treatment during the same time period than if it simply held its portfolio
securities. The fund’s ability to benefit from this strategy may be adversely affected by any loss carryforwards the fund might have.
The foregoing policies relating to investments in equity securities are the fund’s primary investment policies. In addition to its primary investment
policies, the fund may invest to a limited extent in other types of securities and engage in certain other investment practices. The fund may use a variety
of derivative instruments (including long and short positions) for hedging purposes, to adjust portfolio characteristics or more generally for purposes of
attempting to increase the fund’s investment return, including put and call options, options on futures contracts, futures and forward contracts and
swap agreements (including total return swaps) with respect to securities, indices and currencies. The fund may invest in securities of other open- and
closed-end investment companies, including exchange traded funds, to the extent that such investments are consistent with the fund’s investment
objective and policies and permissible under the 1940 Act. The fund may lend its portfolio securities. The fund may invest in debt securities, including
below investment-grade debt securities (also known as “junk bonds”). See “—Additional Investment Practices.” Normally, the fund invests substantially
all of its total assets to meet its investment objective. The fund may invest the remainder of its assets in other equity securities and fixed-income
securities with remaining maturities of less than one year or cash equivalents, or it may hold cash. For temporary defensive purposes, the fund may
depart from its principal investment strategies and invest part or all of its total assets in fixed-income securities with remaining maturities of less than
one year, cash or cash equivalents. During such periods, the fund may not be able to achieve its investment objective.
The fund may deviate from its principal investment strategies during transition periods, which may include the reassignment of portfolio management, a
change in investment objective or strategy, a reorganization or liquidation, or the occurrence of large inflows or outflows.
The fund invests primarily in common stocks. Common stocks represent an ownership interest in an issuer. While offering greater potential for
long-term growth, common stocks are more volatile and more risky than some other forms of investment. Common stock prices fluctuate for many
reasons, including adverse events, such as an unfavorable earnings report, changes in investors’ perceptions of the financial condition of an issuer or
the general condition of the relevant stock market, or when political or economic events affecting the issuers occur. In addition, common stock prices
may be sensitive to rising interest rates as the costs of capital rise and borrowing costs increase.
Although common stocks have historically generated higher average returns than fixed-income securities over the long term and particularly during
periods of high or rising concerns about inflation, common stocks also have experienced significantly more volatility in returns and may not maintain
their real value during inflationary periods. An adverse event, such as an unfavorable earnings report, may depress the value of a particular common
stock held by the fund. Also, the prices of common stocks are sensitive to general movements in the stock market and a drop in the stock market may
depress the price of common stocks to which the fund has exposure. Common stock prices fluctuate for many reasons, including changes in investors’
perceptions of the financial condition of an issuer or the general condition of the relevant stock market, or when political or economic events affecting
the issuers occur. In addition, common stock prices may be sensitive to rising interest rates, as the costs of capital rise and borrowing costs increase.
Typically, the fund invests at least 40% of its total assets in securities of non-U.S. issuers unless the manager deems market conditions and/or company
valuations to be less favorable to non-U.S. issuers, in which case, the fund will invest at least 30% of its total assets in non-U.S. issuers. The fund invests
in non-U.S. securities, including direct investments in securities of non-U.S. issuers and investments in depositary receipts (such as American
Depositary Receipts) that represent indirect interests in securities of non-U.S. issuers. The fund is not limited in the amount of assets it may invest in
such non-U.S. securities. These investments involve risks not associated with investments in the United States, including the risk of fluctuations in
foreign currency exchange rates, unreliable and untimely information about the issuers and political and economic instability. These risks could result in
Epoch misjudging the value of certain securities or in a significant loss in the value of those securities.
The value of non-U.S. securities is affected by changes in currency rates, non-U.S. tax laws (including withholding tax), government policies (in this
country or abroad), relations between nations and trading, settlement, custodial and other operational risks. In addition, the costs of investing abroad
generally are higher than in the United States, and non-U.S. securities markets may be less liquid, more volatile and less subject to governmental
supervision than markets in the United States. As an alternative to holding non-U.S.-traded securities, the fund may invest in dollar-denominated
securities of non-U.S. companies that trade on U.S. exchanges or in the U.S. over-the-counter markets (including depositary receipts as described
below, which evidence ownership in underlying non-U.S. securities, and exchange traded funds (“ETFs”) as described below).
Because non-U.S. companies are not subject to uniform accounting, auditing and financial reporting standards, practices and requirements
comparable to those applicable to U.S. companies, there may be less publicly available information about a non-U.S. company than about a domestic
company. Volume and liquidity in most non-U.S. debt markets is less than in the United States and securities of some non-U.S. companies are less liquid
and more volatile than securities of comparable U.S. companies. There generally is less government supervision and regulation of securities exchanges,
broker-dealers and listed companies than in the United States. Mail service between the United States and foreign countries may be slower or less
reliable than within the United States, thus increasing the risk of delayed settlements of portfolio transactions or loss of certificates for portfolio
securities. Payment for securities before delivery may be required. In addition, with respect to certain foreign countries, there is the possibility of
expropriation or confiscatory taxation, political or social instability, or diplomatic developments, which could affect investments in those countries.
Moreover, individual non-U.S. economies may differ favorably or unfavorably from the U.S. economy in such respects as growth of gross national
product, rate of inflation, capital reinvestment, resource self-sufficiency and balance of payments position. Non-U.S. securities markets, while growing
in volume and sophistication, generally are not as developed as those in the United States, and securities of some non-U.S. issuers (particularly those
located in developing countries) may be less liquid and more volatile than securities of comparable U.S. companies.
The fund may invest in the securities of non-U.S. issuers in the form of sponsored and unsponsored American Depositary Receipts (“ADRs”), Global
Depositary Receipts (“GDRs”), and European Depositary Receipts (“EDRs”) (collectively, “Depositary Receipts”), which are certificates evidencing
ownership of shares of non-U.S. issuers and are alternatives to purchasing directly the underlying non-U.S. securities in their national markets and
currencies. However, such depository receipts continue to be subject to many of the risks associated with investing directly in non-U.S. securities. These
risks include foreign exchange risk as well as the political and economic risks associated with the underlying issuer’s country. ADRs, EDRs and GDRs
may be sponsored or unsponsored. Unsponsored receipts are established without the participation of the issuer. Unsponsored receipts may involve
higher expenses, they may not pass-through voting or other shareholder rights, and they may be less liquid. Less information is normally available on
unsponsored receipts.
The fund may invest in securities of issuers located in emerging markets. The risks of non-U.S. investments described above apply to an even greater
extent to investments in emerging markets. The securities markets of emerging market countries generally are smaller, less developed, less liquid and
more volatile than the securities markets of the United States and developed non-U.S. markets. Disclosure and regulatory standards in many respects
are less stringent than in the United States and developed non-U.S. markets. There also may be a lower level of monitoring and regulation of securities
markets in emerging market countries, and enforcement of existing regulations may be limited. Many emerging market 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 certain emerging market 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. The economies of these countries also have been and may continue to be adversely affected by economic conditions in the countries
in 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 addition, custodial services and other costs relating to investment in non-U.S. markets may be more
expensive in emerging markets than in many developed non-U.S. markets, which could reduce the fund’s income from such securities.
Temporary Defensive Strategies
There may be times when, in the Advisor’s judgment, conditions in the securities market would make pursuit of the fund’s investment strategy
inconsistent with achievement of the fund’s investment objectives. At such times, the Advisor may employ alternative strategies primarily to seek to
reduce fluctuations in the value of the fund’s assets. In implementing these temporary defensive strategies, depending on the circumstances, the fund
may invest part or all of its total assets in fixed-income securities with remaining maturities of less than one year, cash or cash equivalents. Cash
equivalents are highly liquid, short-term securities such as commercial paper, time deposits, certificates of deposit, short-term notes and short-term
U.S. government obligations. During such market circumstances, the fund may not pay tax-advantaged dividends. It is impossible to predict when, or for
how long, the fund may use these alternative strategies.
Additional Portfolio Investments
The fund may invest in preferred securities. Preferred securities, like common stock, represent an equity ownership in an issuer. Generally, preferred
securities have a priority of claim over common stock in dividend payments and upon liquidation of the issuer. Unlike common stock, preferred
securities do not usually have voting rights. Preferred securities in some instances are convertible into common stock. Although they are equity
securities, preferred securities have characteristics of both debt and common stock. Like debt, their promised income is contractually fixed. Like
common stock, they do not have rights to precipitate bankruptcy proceedings or collection activities in the event of missed payments. Other equity
characteristics are their subordinated position in an issuer’s capital structure and that their quality and value are heavily dependent on the profitability
of the issuer rather than on any legal claims to specific assets or cash flows.
Distributions on preferred securities must be declared by the board of directors and may be subject to deferral, and thus they may not be automatically
payable. Income payments on preferred securities may be cumulative, causing dividends and distributions to accrue even if not declared by the board
or otherwise made payable, or they may be non-cumulative, so that skipped dividends and distributions do not continue to accrue. There is no
assurance that dividends on preferred securities in which the fund invests will be declared or otherwise made payable. The fund may invest in
non-cumulative preferred securities, although Epoch would consider, among other factors, their non-cumulative nature in making any decision to
purchase or sell such securities.
Shares of preferred securities have a liquidation value that generally equals the original purchase price at the date of issuance. The market values of
preferred securities may be affected by favorable and unfavorable changes impacting the issuers’ industries or sectors, including companies in the
utilities and financial services sectors, which are prominent issuers of preferred securities. They also may be affected by actual and anticipated changes
or ambiguities in the tax status of the security and by actual and anticipated changes or ambiguities in tax laws, such as changes in corporate and
individual income tax rates, and in the dividends received deduction for corporate taxpayers or the characterization of dividends as tax-advantaged as
described herein.
Because the claim on an issuer’s earnings represented by preferred securities may become onerous when interest rates fall below the rate payable on
the security or for other reasons, the issuer may redeem preferred securities, generally after an initial period of call protection during which the security
is not redeemable. Thus, in declining interest rate environments in particular, the fund’s holdings of higher dividend-paying preferred securities may be
reduced and the fund may be unable to acquire securities paying comparable rates with the redemption proceeds. For the fund to receive
tax-advantaged dividend income on preferred securities, the fund must hold securities paying an otherwise tax-advantaged dividend for more than
90 days during the associated 180-day period. In addition, as is the case for Common Shares the fund cannot be obligated to make related payments
(pursuant to a short sale or otherwise) with respect to substantially similar or related property. Similar provisions apply to each Common Shareholder’s
investment in the fund as discussed herein.
The fund does not expect to, but reserves the flexibility to, use a variety of derivative instruments (including both long and short positions) for hedging
purposes, to adjust portfolio characteristics, or more generally for purposes of attempting to increase the fund’s investment return, including, for
example, buying and selling call and put options, buying and selling futures contracts and options on futures contracts, and entering into forward
contracts and swap agreements (including total return swaps) with respect to securities, indices, and currencies. There can be no assurance that the
fund will enter into any such transaction at any particular time or under any specific circumstances.
The fund may purchase and sell derivative instruments such as exchange-listed and over-the-counter put and call options on securities, financial
futures, equity, fixed-income, interest rate indices and other financial instruments, purchase and sell financial futures contracts and options thereon,
and enter into various interest rate transactions such as swaps, caps, floors or collars. The fund also may purchase or sell derivative instruments that
combine features of these instruments. Derivatives have risks, including the imperfect correlation between the value of such instruments and the
underlying assets, the possible default of the other party to the transaction, and illiquidity of the derivative instruments. The ability to use derivatives to
benefit the fund depends, in part, on the Advisor’s or Epoch’s ability to predict market movements correctly, which cannot be assured. Thus, the use of
derivatives may result in a loss greater than if they had not been used, may require the fund to sell or purchase portfolio securities at inopportune times
or for prices other than the values the fund has placed on them, may limit the amount of appreciation the fund can realize on an investment, or may
cause the fund to hold a security that it might otherwise sell. Additionally, amounts paid by the fund as premiums and cash or other assets held in
margin accounts with respect to derivatives may not otherwise be available to the fund for investment purposes.
The Advisor is a registered commodity pool operator (“CPO”) under the CEA and is a National Futures Association member firm. The Advisor has claimed
an exclusion from CPO registration pursuant to CFTC Rule 4.5 with respect to the fund.
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, the Dodd-Frank Wall Street Reform and Consumer Protection Act, and regulations promulgated or proposed thereunder require many
derivatives to be cleared and traded on an exchange, expand entity registration requirements, impose business conduct requirements on dealers that
enter into swaps with a pension plan, endowment, retirement plan or government entity, and required banks to move some derivatives trading units to a
non-guaranteed affiliate separate from the deposit-taking bank or divest them altogether. Although the CFTC has released final rules relating to clearing,
reporting, recordkeeping and registration requirements under the legislation, many of the provisions are subject to further final rule making, and thus
their ultimate impact remains unclear. New regulations could, among other things, restrict the fund’s ability to engage in derivatives transactions (for
example, by making certain types of derivatives transactions no longer available to the fund) and/or increase the costs of such derivatives transactions
(for example, by increasing margin or capital requirements), and the fund may be unable to fully execute its investment strategies as a result. Limits or
restrictions applicable to the counterparties with which the fund engages in derivative transactions also could prevent the fund from using these
instruments or affect the pricing or other factors relating to these instruments, or may change the availability of certain investments.
In addition, 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), 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
Investment Company Act of 1940. In addition, when-issued or forward settling securities transactions that physically settle within 35-days are deemed
not to involve a senior security.At any time after the date of this prospectus, legislation may be enacted that could negatively affect the assets of the
fund. Legislation or regulation may change the way in which the fund itself is regulated. The Adviser cannot predict the effects of any new governmental
regulation that may be implemented, and there can be no assurance that any new governmental regulation will not adversely affect the fund’s ability to
achieve its investment objectives.
In certain extraordinary market circumstances, the fund may purchase put options (including married puts as described herein) when it believes that
extra risk is present in the equity market. Put options are contracts that give the holder of the option, in return for a premium, the right to sell to the
writer of the option the security/index underlying the option at a specified exercise price at any time during the term of the option. The fund would use
put options as a general hedge against potential declines in equity markets. As the purchaser of index put options, the fund seeks to benefit from a
decline in the market prices of the underlying index, thereby hedging the fund’s exposure to market risk. The fund will pay a premium to the seller of the
option for the right to receive payments of cash to the extent that the value of the applicable index declines below a fixed price (the exercise price) as of
a specified date in the future (the option valuation date). If the index price is above the exercise price of the option as of the option valuation date, the
option expires worthless and the fund will not be able to recover the option premium paid. In buying index put options, the fund, in effect, acquires
protection against a decline in the value of the applicable index below the exercise price in exchange for the option premium paid. If, at expiration, an
index put option purchased by the fund is exercised, the fund will receive from the option seller the difference between the cash value of the applicable
index and the exercise price of the option. The premium paid, the exercise price and the market value of the applicable index will determine the gain or
loss realized by the fund as the buyer of the index put option.
The fund may invest to a limited extent in a wide variety of bonds, debentures and similar debt securities of varying maturities and durations issued by
corporations and other business entities, including limited liability companies. Debt securities in which the fund may invest may pay fixed or variable
rates of interest. Bonds and other debt securities generally are issued by corporations and other issuers to borrow money from investors. The issuer
pays the investor a fixed or variable rate of interest and normally must repay the amount borrowed on or before maturity. Certain debt securities are
“perpetual” in that they have no maturity date. The fund may invest in debt securities of below investment grade quality, commonly known as “junk
bonds,” which are considered to be predominantly speculative in nature because of the credit risk of the issuers. Income payments on debt securities
received by the fund will be fully taxable as ordinary income. To the extent the fund invests in debt securities, such investments will not be eligible for
favorable tax treatment. Prices of bonds tend to move inversely with changes in interest rates. Some bonds give the issuer the option to call (redeem)
the bonds before their maturity date. If an issuer calls its bond during a time of declining interest rates, the fund might not benefit from any increase in
value as a result of declining interest rates. Failure of an issuer to make timely interest or principal payments, or a decline or perception of a decline in
the credit quality of a bond, can cause a bond’s price to fall. The fund’s investments in preferred stocks and bonds of below investment grade quality, if
any, are predominantly speculative because of the credit risk of their issuers. Issuers of below investment grade quality preferred stocks and bonds are
more likely to default on their payments of dividends/interest and liquidation value/principal owed to the fund, and such defaults will reduce the fund’s
NAV and income distributions. The prices of these lower quality preferred stocks and bonds are more sensitive to negative developments than higher
rated securities. Adverse business conditions, such as a decline in the issuer’s revenues or an economic downturn, generally lead to a higher
non-payment rate.
The fund may invest in ETFs, which are investment companies that aim to track or replicate a desired index, such as a sector, market or global segment.
ETFs are passively or actively managed and their shares are traded on a national exchange or the NASDAQ. ETFs do not sell individual shares directly to
investors and only issue their shares in large blocks known as “creation units.” The investor purchasing a creation unit may sell the individual shares on a
secondary market. Therefore, the liquidity of ETFs depends on the adequacy of the secondary market. There can be no assurance that an ETF’s
investment objective will be achieved, as ETFs based on an index may not replicate and maintain exactly the composition and relative weightings of
securities in the index. ETFs are subject to the risks of investing in the underlying securities. The fund, as a holder of the securities of the ETF, will bear
its pro rata portion of the ETF’s expenses, including advisory fees. These expenses are in addition to the direct expenses of the fund’s own operations.
Other investment companies
The fund may invest in securities of open- or other closed-end investment companies, including ETFs, to the extent that such investments are consistent
with the fund’s investment objective and policies and permissible under the 1940 Act. The fund, as a holder of the securities of other investment
companies, will bear its pro rata portion of the other investment companies’ expenses, including advisory fees. These expenses are in addition to the
direct expenses of the fund’s own operations. Common Shareholders would therefore be subject to duplicative expenses to the extent the fund invests in
other investment companies. In addition, these other investment companies may utilize leverage, in which case an investment would subject the fund to
additional risks associated with leverage. See “Risk Factors—Leverage Risk.”
The fund may enter into repurchase agreements. When the fund enters into a repurchase agreement, it receives collateral which is held in a segregated
account by the fund’s custodian. The collateral amount is marked-to-market and monitored on a daily basis to ensure that the collateral held is in an
amount not less than the principal amount of the repurchase agreement plus any accrued interest. In the event of a default by the counterparty,
realization of the collateral proceeds could be delayed, during which time the collateral value may decline.
The fund may invest up to 15% of the value of its net assets in illiquid securities. Illiquid securities include securities that have legal or contractual
restrictions on resale, 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), and repurchase agreements maturing in more than seven days. Illiquid securities involve the risk that the securities
will not be able to be sold at the time desired or at prices approximating the value at which the fund is carrying the securities.
The foregoing policies relating to investments in equity securities are the fund’s primary investment policies. In addition to its primary investment
policies, the fund may invest to a limited extent in other types of securities and engage in certain other investment practices. The fund may use a variety
of derivative instruments (including long and short positions) for hedging purposes, to adjust portfolio characteristics or more generally for purposes of
attempting to increase the fund’s investment return, including put and call options, options on futures contracts, futures and forward contracts and
swap agreements (including total return swaps) with respect to securities, indices and currencies. The fund may invest in securities of other open- and
closed-end investment companies, including exchange traded funds, to the extent that such investments are consistent with the fund’s investment
objective and policies and permissible under the 1940 Act. The fund may lend its portfolio securities. The fund may invest in debt securities, including
below investment-grade debt securities (also known as “junk bonds”). See “—Additional Investment Practices.” Normally, the fund invests substantially
all of its total assets to meet its investment objective. The fund may invest the remainder of its assets in other equity securities and fixed-income
securities with remaining maturities of less than one year or cash equivalents, or it may hold cash. For temporary defensive purposes, the fund may
depart from its principal investment strategies and invest part or all of its total assets in fixed-income securities with remaining maturities of less than
one year, cash or cash equivalents. During such periods, the fund may not be able to achieve its investment objective.
The fund may deviate from its principal investment strategies during transition periods, which may include the reassignment of portfolio management, a
change in investment objective or strategy, a reorganization or liquidation, or the occurrence of large inflows or outflows.
Other Investment Policies
The fund may, but is under no obligation to, from time to time employ a variety of investment techniques, including those described below, to hedge
against fluctuations in the price of portfolio securities, to enhance total return or to provide a substitute for the purchase or sale of securities. The fund’s
ability to use any of the techniques described below may be limited by restrictions imposed on its operations in connection with obtaining and
maintaining its qualification as a regulated investment company under the Code. Additionally, other factors (such as cost) may make it impractical or
undesirable to use any of these investment techniques from time to time.
The fund has no current intention to borrow for investment purposes or to issue preferred shares. However, it may borrow from banks for extraordinary
or emergency purposes. Further, the fund is authorized and reserves the flexibility to utilize leverage through borrowing and/or the issuance of
preferred shares, including the issuance of debt securities, to the extent permitted by the 1940 Act.
The fund may engage in short-term trading strategies, and securities may be sold without regard to the length of time held when, in the opinion of
Epoch, investment considerations warrant such action. In addition, the fund’s dividend capture program also may increase the level of portfolio turnover
that the fund experiences. These policies may have the effect of increasing the annual rate of portfolio turnover of the fund. A high turnover rate (100%
or more) necessarily involves greater trading costs to the fund and may result in the realization of net short-term capital gain. The portfolio turnover rate
for the fund for the fiscal years ended October 31, 2023 and October 31, 2022 was 308% and 311%, respectively. If securities are not held for the
applicable holding periods, dividends paid on them will not qualify for the advantageous U.S. federal tax rates. See “Investment Strategies” and
“U.S. Federal Income Tax Matters.”
Lending of portfolio securities
The fund may lend portfolio securities to registered broker-dealers, or other institutional investors, under agreements which require that the loans be
secured continuously by collateral in cash, cash equivalents, or U.S. Treasury bills or other collateral maintained on a current basis at an amount at
least equal to the market value of the securities loaned. The fund continues to receive the equivalent of the interest or dividends paid by the issuer on
the securities loaned as well as the benefit of any increase and the detriment of any decrease in the market value of the securities loaned and also would
receive a portion of the investment return on the collateral. The fund would not have the right to vote any securities having voting rights during the
existence of the loan, but would have the right to call the loan in anticipation of an important vote to be taken among holders of the securities or of the
giving or withholding of consent on a material matter affecting the investment.
As with other extensions of credit, there are risks of delay in recovery or even loss of rights in the collateral should the borrower of the securities fail
financially. In addition, under such circumstances, the fund may not be able to recover securities loaned. At no time would the value of the securities
loaned exceed 33% of the value of the fund’s total assets. Compensation received by the fund in connection with securities lending activities will not
constitute tax-advantaged qualified dividend income.
Foreign currency transactions
The value of non-U.S. assets as measured in U.S. dollars may be affected favorably or unfavorably by changes in foreign currency rates and exchange
control regulations. Currency exchange rates also can be affected unpredictably by intervention by U.S. or foreign governments or central banks, or the
failure to intervene, or by currency controls or political developments in the United States or abroad. The fund may (but is not required to) engage in
transactions to hedge against changes in foreign currencies, and will use such hedging techniques when the Advisor or Epoch deems appropriate.
Foreign currency exchange transactions may be conducted on a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market or through entering into derivative currency transactions. Currency futures contracts are exchange-traded and change in value to reflect
movements of a currency or a basket of currencies. Settlement must be made in a designated currency.
Forward foreign currency exchange contracts are individually negotiated and privately traded so they are dependent upon the creditworthiness of the
counterparty. Such contracts may be used when a security denominated in a foreign currency is purchased or sold, or when the receipt in a foreign
currency of dividend or interest payments on such a security is anticipated. A forward contract can then “lock in” the U.S. dollar price of the security or
the U.S. dollar equivalent of such dividend or interest payment, as the case may be.
Additionally, when the Advisor or Epoch believes that the currency of a particular foreign country may suffer a substantial decline against the U.S. dollar,
it may enter into a forward contract to sell, for a fixed amount of dollars, the amount of foreign currency approximating the value of some or all of the
securities held that are denominated in such foreign currency. The precise matching of the forward contract amounts and the value of the securities
involved generally will not be possible. In addition, it may not be possible to hedge against long-term currency changes. Cross-hedging may be
performed by using forward contracts in one currency (or basket of currencies) to hedge against fluctuations in the value of securities denominated in a
different currency if the Advisor or Epoch determines that there is an established historical pattern of correlation between the two currencies (or the
basket of currencies and the underlying currency). Use of a different foreign currency magnifies exposure to foreign currency exchange rate
fluctuations. Forward contracts also may be used to shift exposure to foreign currency exchange rate changes from one currency to another. Short-term
hedging provides a means of fixing the dollar value of only a portion of portfolio assets. Income or gain earned on any of the fund’s foreign currency
transactions generally will be treated as fully taxable income (i.e., income other than tax-advantaged dividends).
Currency transactions are subject to the risk of a number of complex political and economic factors applicable to the countries issuing the underlying
currencies. Furthermore, unlike trading in most other types of instruments, there is no systematic reporting of last sale information with respect to the
foreign currencies underlying the derivative currency transactions. As a result, available information may not be complete. In an over-the-counter
trading environment, there are no daily price fluctuation limits. There may be no liquid secondary market to close out options purchased or written, or
forward contracts entered into, until their exercise, expiration or maturity. There also is the risk of default by, or the bankruptcy of, the financial
institution serving as counterparty.
The manager may consider ESG factors that it deems relevant or additive, along with other material factors and analysis, when managing the fund. ESG
factors may include, but are not limited to, matters regarding board diversity, climate change policies, and supply chain and human rights policies. ESG
factors may include, but are not limited to, matters regarding board diversity, climate change policies, and supply chain and human rights policies. The
portion of the fund's investments for which the manager considers these ESG factors may vary, and could increase or decrease over time. The ESG
characteristics utilized in the fund’s investment process may change over time, and different ESG characteristics may be relevant to different
investments.
The principal risks of investing in the fund are summarized in the Prospectus Summary above. Below are descriptions of the principal factors that may
play a role in shaping the fund’s overall risk profile. The descriptions appear in alphabetical order by general risks, and equity strategy risks, not in order
of importance. For further details about the fund’s risks, including additional risk factors that are not discussed in this Prospectus because they are
considered non-principal risk factors, see the fund’s SAI.
During periods of adverse market or economic conditions, the Fund may temporarily invest all or a substantial portion of its total assets in short-term
money market securities with remaining maturities of less than one year, cash or cash equivalents. The Fund will not be pursuing its investment
objective in these circumstances and could miss favorable market developments.
There can be no assurance that quarterly distributions paid by the Fund to shareholders will be maintained at current levels or increase over time. The
quarterly distributions shareholders receive from the Fund are derived from the Fund’s dividends and interest income after payment of Fund expenses,
net option premiums, and net realized gain on equity securities investments. If stock market volatility and/or stock prices decline, the premiums
available from writing call options and writing put options on individual stocks likely will decrease as well. Payments to purchase put options and to close
written call and put options will reduce amounts available for distribution. Net realized gain on the Fund’s stock investments will be determined primarily
by the direction and movement of the stock market and the equity securities held. The Fund’s cash available for distribution may vary widely over the
short- and long-term. If, for any calendar year, the total distributions made exceed the Fund’s net investment taxable income and net capital gain, the
excess generally will be treated as a return of capital to each Common Shareholder (up to the amount of the Common Shareholder’s basis in his or her
Common Shares) and thereafter as gain from the sale of Common Shares. The amount treated as a return of capital reduces the Common Shareholder’s
adjusted basis in his or her Common Shares, thereby increasing his or her potential gain or reducing his or her potential loss on the subsequent sale of
his or her Common Shares. Distributions in any year may include a substantial return of capital component. Dividends on common stocks are not fixed
but are declared at the discretion of the issuer’s board of directors. The Fund’s dividend income will be substantially influenced by the activity level and
success of its dividend capture trading program, which may not work as intended.
Economic and market events risk
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; bank
failures; governmental efforts to limit short selling and high frequency trading; measures to address U.S. federal and state budget deficits; social,
political, and economic instability in Europe; economic stimulus by the Japanese central bank; dramatic changes in energy prices and currency
exchange rates; and China’s economic slowdown. Interconnected global economies and financial markets increase the possibility that conditions in one
country or region might adversely impact issuers in a different country or region. Both domestic and foreign equity markets have experienced increased
volatility and turmoil, with issuers that have exposure to the real estate, mortgage, and credit markets particularly affected. Financial institutions could
suffer losses as interest rates rise or economic conditions deteriorate.
In addition, relatively high market volatility and reduced liquidity in credit and fixed-income markets may adversely affect many issuers worldwide.
Actions taken by the U.S. Federal Reserve (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 net
asset value (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 the fund.
Political turmoil within the United States and abroad may also impact the 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 the 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 European Union (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 United Kingdom (UK) left the EU, commonly referred to as “Brexit,” the UK
ceased to be a member of the EU, and the UK and EU entered into a Trade and Cooperation Agreement. 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.
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. While many countries have lifted some or all restrictions related to the coronavirus (COVID-19) and the United States ended the public health
emergency and national emergency declarations relating to the coronavirus (COVID-19) pandemic on May 11, 2023, the continued impact of
coronavirus (COVID-19) and related variants is uncertain. 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.
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.
The manager considers ESG factors that it deems relevant or additive, along with other material factors and analysis, when managing the fund. The
portion of the fund’s investments for which the manager considers these ESG factors may vary, and could increase or decrease over time. In certain
situations, the extent to which these ESG factors may be applied according to the manager’s integrated investment process may not include
U.S. Treasuries, government securities, or other asset classes. 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 the manager, carries the risk that the 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 the fund’s investment process may result in a manager
making different investments for the 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 the fund’s investment performance may be affected. Because ESG factors are one of many
considerations for the fund, the manager may nonetheless include companies with low ESG characteristics or exclude companies with high ESG
characteristics in the fund’s investments.
The ESG characteristics utilized in the fund’s investment process may change over time, and different ESG characteristics may be relevant to different
investments. Although the manager has established its own structure to oversee ESG integration in accordance with the fund’s investment objective and
strategies, successful integration of ESG factors will depend on the manager’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 the manager in accordance with the fund’s investment objective and strategies. ESG
factors may be evaluated differently by different managers, and may not carry the same meaning to all investors and managers. The manager may
employ active shareowner engagement to raise ESG issues with the management of select portfolio companies. The regulatory landscape with respect
to ESG investing in the United States is evolving and any future rules or regulations may require the fund to change its investment process with respect
to ESG integration.
Fixed-income securities risk
Fixed-income securities are generally subject to two principal types of risk, as well as other risks described below: (1) interest-rate risk and (2) credit
quality 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.
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.
In response to certain serious economic disruptions, governmental authorities and regulators typically respond 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.
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 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.
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. 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.
Although the Fund has no current intention to do so, the Fund is authorized and reserves the flexibility to utilize leverage through borrowings and/or the
issuance of preferred shares, including the issuance of debt securities. In the event that the Fund determines in the future to utilize investment leverage,
there can be no assurance that such a leveraging strategy will be successful during any period in which it is employed. Leverage creates risks for
Common Shareholders, including the likelihood of greater volatility of the NAV and market price of the Common Shares and the risk that fluctuations in
distribution rates on any preferred shares or fluctuations in borrowing costs may affect the return to Common Shareholders. To the extent the returns
derived from securities purchased with proceeds received from leverage exceeds the cost of leverage, the Fund’s distributions may be greater than if
leverage had not been used. Conversely, if the returns from the securities purchased with such proceeds are not sufficient to cover the cost of leverage,
the amount available for distribution to Common Shareholders will be less than if leverage had not been used. In the latter case, the Advisor, in its best
judgment, may nevertheless determine to maintain the Fund’s leveraged position if it deems such action to be appropriate. The costs of an offering of
preferred shares and/or a borrowing program would be borne by Common Shareholders and consequently would result in a reduction of the NAV of
Common Shares. In addition, the fee paid to the Advisor is calculated on the basis of the Fund’s average daily gross assets, including proceeds from
borrowings and/or the issuance of preferred shares, so the fee will be higher when leverage is utilized, which may create an incentive for the Advisor to
employ financial leverage. In this regard, holders of preferred shares do not bear the investment advisory fee. Rather, Common Shareholders bear the
portion of the investment advisory fee attributable to the assets purchased with the proceeds of the preferred shares offering.
LIBOR discontinuation risk
Certain debt securities, derivatives and other financial instruments have traditionally utilized LIBOR as the reference or benchmark rate for interest rate
calculations. However, following allegations of manipulation and concerns regarding liquidity, the U.K. Financial Conduct Authority (UK FCA) announced
that LIBOR would be discontinued on June 30, 2023. The UK FCA elected to require the ICE Benchmark Administration Limited, the administrator of
LIBOR, to continue publishing a subset of British pound sterling and U.S. dollar LIBOR settings on a “synthetic” basis. The synthetic publication of the
three-month sterling LIBOR will continue until March 31, 2024, and the publication of the one-, three- and six-month U.S. dollar LIBOR will continue until
September 30, 2024.
Although the transition process away from LIBOR has become increasingly well-defined in advance of the discontinuation dates, the impact on certain
debt securities, derivatives and other financial instruments remains uncertain. Market participants have adopted alternative rates such as Secured
Overnight Financing Rate (SOFR) or otherwise amended financial instruments referencing LIBOR to include fallback provisions and other measures that
contemplated 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. 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.
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.
The Common Shares will be offered only when Common Shares of the Fund are trading at a price equal to or above the Fund’s NAV per Common Share
plus the per Common Share amount of commissions. As with any security, the market value of the Common Shares may increase or decrease from the
amount initially paid for the Common Shares. The Common Shares have traded at both a premium and at a discount to NAV. The shares of closed-end
management investment companies frequently trade at a discount from their NAV. This characteristic is a risk separate and distinct from the risk that
the Fund’s NAV could decrease as a result of investment activities. Investors bear a risk of loss to the extent that the price at which they sell their shares
is lower in relation to the Fund’s NAV than at the time of purchase, assuming a stable NAV.
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, the fund’s service providers are susceptible to operational and information or cybersecurity risks that
could result in losses to the fund and its shareholders. Intentional cybersecurity breaches 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. Cyber-attacks 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 (possibly resulting in the violation of applicable privacy
laws).
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. Such incidents could cause a fund, the advisor, a manager, or other
service providers to incur regulatory penalties, reputational damage, additional compliance costs, litigation costs or financial loss. In addition, such
incidents could affect issuers in which a fund invests, and thereby cause the fund’s investments to lose value.
Cyber-events have the potential to materially affect the fund and the advisor’s relationships with accounts, shareholders, clients, customers,
employees, products, and service providers. The fund has established risk management systems reasonably designed to seek to reduce the risks
associated with cyber-events. There is no guarantee that the fund will be able to prevent or mitigate the impact of any or all cyber-events.
The fund is exposed to operational risk arising from a number of factors, including, but not limited to, human error, processing and communication
errors, errors of the fund’s service providers, counterparties, or other third parties, failed or inadequate processes and technology or system failures.
In addition, other disruptive events, including (but not limited to) natural disasters and public health crises 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.
The Fund may engage in short-term trading strategies, and securities may be sold without regard to the length of time held when, in the opinion of
Epoch, investment considerations warrant such action. In addition, the Fund’s dividend capture program also may increase the level of portfolio turnover
the Fund experiences. These policies may have the effect of increasing the annual rate of portfolio turnover of the Fund. Higher rates of portfolio
turnover likely would result in higher brokerage commissions and may generate short-term capital gain taxable as ordinary income, which may have a
negative impact on the Fund’s performance over time.
Secondary Market for the Common Shares
The issuance of new Common Shares may have an adverse effect on the secondary market for the Common Shares. When the Common Shares are
trading at a premium, the Fund may issue new Common Shares. The increase in the amount of the Fund’s outstanding Common Shares resulting from
the offering of new Common Shares may put downward pressure on the market price for the Common Shares of the Fund. Common Shares will not be
issued at any time when Common Shares are trading at a price lower than a price equal to the Fund’s NAV per Common Share plus the per Common
Share amount of commissions.
The Fund also issues Common Shares through its dividend reinvestment plan. Common Shares may be issued under the plan at a discount to the market
price for such Common Shares, which may put downward pressure on the market price for Common Shares of the Fund.
The voting power of current Common Shareholders will be diluted to the extent that such shareholders do not purchase shares in any future Common
Share offerings or do not purchase sufficient shares to maintain their percentage interest. In addition, if the proceeds of such offering are unable to be
invested as intended, the Fund’s per Common Share distribution may decrease (or may consist of return of capital) and the Fund may not participate in
market advances to the same extent as if such proceeds were fully invested as planned.
To qualify for the special tax treatment available to regulated investment companies, the Fund must: (i) derive at least 90% of its annual gross income
from certain kinds of investment income; (ii) meet certain asset diversification requirements at the end of each quarter; and (iii) distribute in each
taxable year at least 90% of its net investment income (including net interest income and net short term capital gain). If the Fund failed to meet any of
these requirements, subject to the opportunity to cure such failures under applicable provisions of the Code, the Fund would be subject to U.S. federal
income tax at regular corporate rates on its taxable income, including its net capital gain, even if such income were distributed to its shareholders. All
distributions by the Fund from earnings and profits, including distributions of net capital gain (if any), would be taxable to the shareholders as ordinary
income. Such distributions generally would be eligible (i) to be treated as qualified dividend income in the case of individual and other noncorporate
shareholders and (ii) for the dividends received deduction in the case of corporate shareholders; provided that in each case the shareholder meets the
applicable holding period requirements. In addition, in order to requalify for taxation as a regulated investment company, the Fund might be required to
recognize unrealized gain, pay substantial taxes and interest, and make certain distributions. See “U.S. Federal Income Tax Matters.”
The tax treatment and characterization of the Fund’s distributions may vary significantly from time to time due to the nature of the Fund’s investments.
The ultimate tax characterization of the Fund’s distributions in a calendar year may not finally be determined until after the end of that calendar year. The
Fund may make distributions during a calendar year that exceed the Fund’s net investment income and net realized capital gain for that year. In such a
situation, the amount by which the Fund’s total distributions exceed net investment income and net realized capital gain generally would be treated as a
return of capital up to the amount of the Common Shareholder’s tax basis in his or her Common Shares, with any amounts exceeding such basis treated
as gain from the sale of his or her Common Shares. The Fund’s income distributions that qualify for favorable tax treatment may be affected by Internal
Revenue Service (“IRS”) interpretations of the Code and future changes in tax laws and regulations. See “U.S. Federal Income Tax Matters.”
No assurance can be given as to what percentage of the distributions paid on the Common Shares, if any, will consist of tax-advantaged qualified
dividend income or long-term capital gain or what the tax rates on various types of income will be in future years. In addition, it may be difficult to obtain
information regarding whether distributions by non-U.S. entities in which the Fund invests should be regarded as qualified dividend income.
Furthermore, to receive qualified dividend income treatment, the Fund must meet holding period and other requirements with respect to the
dividend-paying securities in its portfolio, and the shareholder must meet holding period and other requirements with respect to the Common Shares.
The Declaration of Trust includes provisions that could limit the ability of other persons or entities to acquire control of the Fund or to change the
composition of its Board. These provisions may deprive shareholders of opportunities to sell their Common Shares at a premium over the then current
market price of the Common Shares. See “Certain Provisions in the Declaration of Trust and By-Laws—Anti-takeover provisions.”
Common Stock and Other Equity Securities Risk
The Fund invests primarily in common stocks, which represent an ownership interest in a company. The Fund also can invest in securities that can be
exercised for or converted into common stocks (such as convertible preferred stock). Common stocks and similar equity securities are more volatile
and more risky than some other forms of investment. Therefore, the value of your investment in the Fund may fluctuate and may be worth less than your
initial investment. Common stock prices fluctuate for many reasons, including changes in investors’ perceptions of the financial condition of an issuer,
the general condition of the relevant stock market or when political or economic events affecting the issuers occur. In addition, common stock prices
may be sensitive to rising interest rates, as the costs of capital rise for issuers. Because convertible securities can be converted into equity securities,
their values will normally increase or decrease as the values of the underlying equity securities increase or decrease.
Currency risk is the risk that fluctuations in exchange rates may adversely affect the U.S. dollar value of the Fund’s investments. Currency risk includes
both the risk that currencies in which the Fund’s investments are traded, or currencies in which the Fund has taken an active investment position, will
decline in value relative to the U.S. dollar and, in the case of hedging positions, that the U.S. dollar will decline in value relative to the currency being
hedged. Currency rates in foreign countries may fluctuate significantly for a number of reasons, including the forces of supply and demand in the
non-U.S. exchange markets, actual or perceived changes in interest rates, intervention (or the failure to intervene) by U.S. or foreign governments or
central banks or currency controls or political developments in the United States or abroad. All funds with foreign currency holdings and/or that invest
or trade in securities denominated in foreign currencies or related derivative instruments may be adversely affected by changes in foreign currency
exchange rates. Derivative foreign currency transactions (such as futures, forwards and swaps) also may involve leveraging risk, in addition to currency
risk. Leverage may disproportionately increase the Fund’s portfolio losses and reduce opportunities for gain when interest rates, stock prices or
currency rates are changing.
Epoch may not be able to anticipate the level of dividends that companies will pay in any given timeframe. In accordance with the Fund’s strategies,
Epoch attempts to identify and exploit opportunities such as the announcement of major corporate actions that may lead to high current dividend
income. These situations typically are non-recurring or infrequent, may be difficult to predict and may not result in an opportunity that allows Epoch to
fulfill the Fund’s investment objective. In addition, the dividend policies of the Fund’s target companies are heavily influenced by the current economic
climate and the favorable U.S. federal tax treatment afforded to dividends.
The Fund may invest up to 20% of its total assets in the securities of issuers based in countries with “emerging market” economies. Investments in the
securities of issuers based in countries with “emerging market” economies are subject to greater levels of risk and uncertainty than investments in
more-developed non-U.S. markets, since emerging market securities may present market, credit, currency, liquidity, legal, political and other risks
greater than, or in addition to, the risks of investing in developed non-U.S. countries. These risks include: high currency exchange-rate fluctuations;
increased risk of default (including both government and private issuers); greater social, economic and political uncertainty and instability (including
the risk of war); more substantial governmental involvement in the economy; less governmental supervision and regulation of the securities markets and
participants in those markets; controls on foreign investment and limitations on repatriation of invested capital and on the Fund’s ability to exchange
local currencies for U.S. dollars; unavailability of currency hedging techniques in certain emerging market countries; the fact that companies in
emerging market countries may be newly organized, smaller and less seasoned; the difference in, or lack of, auditing and financial reporting
requirements or standards, which may result in the unavailability of material information about issuers; different clearance and settlement procedures,
which may be unable to keep pace with the volume of securities transactions or otherwise make it difficult to engage in such transactions; difficulties in
obtaining and/or enforcing legal judgments against non-U.S. companies and non-U.S. persons, including company directors and officers, in
non-U.S. jurisdictions; and significantly smaller market capitalizations of emerging market issuers.
In addition, shareholders of emerging market issuers, such as the Fund, often have limited rights and few practical remedies in emerging markets.
Finally, the risks associated with investments in emerging markets often are significant, and vary from jurisdiction to jurisdiction and company to
company
Countries in Europe may be significantly affected by fiscal and monetary controls implemented by the European Union (EU) and Economic and
Monetary Union (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,” the UK ceased to be a member of the EU, and the UK
and EU entered into a Trade and Cooperation Agreement. 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. 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.
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.
Although they are larger and/or more established than many emerging markets, the markets of the Greater China region function in many ways as
emerging markets, and carry the high levels of risks associated with emerging market economies. In addition, there are risks particular to the region,
including less developed trading markets, acute political risks such as possible negative repercussions resulting from China’s relationship with Taiwan
or Hong Kong, and restrictions on monetary repatriation or other adverse government actions. In addition, investments in Taiwan could be adversely
affected by its political relationship with China and because Taiwan does not exercise the same level of control over its economy as the government of
the People’s Republic of China (PRC) does with respect to Mainland China’s economy, changes to its political and economic relationship with the PRC
could adversely impact a fund’s investments.
Further, the attitude of the PRC toward growth and capitalism is uncertain, and the markets of Hong Kong and Mainland China could be hurt significantly
by any government interference or any material change in government policy. 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. A small number of companies and industries may represent a relatively large portion of the Greater China market as a whole. All
of these factors combined mean that the fund is more likely to experience greater price volatility and lower liquidity than a portfolio that invests
substantially in equity securities of U.S. issuers.
Hong Kong Stock Connect Program (Stock Connect) Risk.
Trading in China A-Shares listed and traded on certain Chinese stock exchanges through Stock Connect, a mutual market access program designed to,
among other things, enable foreign investment in the People’s Republic of China (PRC) via brokers in Hong Kong, is subject to both a number of
restrictions imposed by Chinese securities regulations and local exchange listing rules as well as certain risks. Securities listed on Stock Connect may
lose purchase eligibility, which could adversely affect the fund’s performance. Trading through Stock Connect is subject to trading, clearance, and
settlement procedures that may continue to develop as the program matures. Any changes in laws, regulations and policies applicable to Stock Connect
may affect China A-Share prices. These risks are heightened by the underdeveloped state of the PRC’s investment and banking systems in general.
Illiquid and Restricted Securities Risk
Restricted securities are securities with restrictions on public resale, such as securities offered in accordance with an exemption under Rule 144A
under the Securities Act of 1933 (the “1933 Act”), or commercial paper issued under Section 4(a)(2) of the 1933 Act. Restricted securities are often
required to be sold in private sales to institutional buyers, markets for restricted securities may or may not be well developed, and restricted securities
can be illiquid. The extent (if at all) to which a security may be sold or a derivative position closed without negatively impacting its market value may be
impaired by reduced market activity or participation, legal restrictions or other economic and market impediments. Funds with principal investment
strategies that involve investments in securities of companies with smaller market capitalizations, foreign securities, derivatives, or securities with
substantial market and/or credit risk tend to have the greatest exposure to liquidity risk. Exposure to liquidity risk may be heightened for funds that
invest in securities of emerging markets and related derivatives that are not widely traded, and that may be subject to purchase and sale restrictions.
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. The Fund may
invest up to 15% of its net assets in securities for which there is no readily available trading market or which are otherwise illiquid. The extent (if at all) to
which a security may be sold or a derivative position closed without negatively impacting its market value may be impaired by reduced market activity or
participation, legal restrictions or other economic and market impediments. Funds with principal investment strategies that involve investments in
securities of companies with smaller market capitalizations, foreign securities, derivatives, or securities with substantial market and/or credit risk tend
to have the greatest exposure to liquidity risk. Exposure to liquidity risk may be heightened for funds that invest in securities of emerging markets and
related derivatives that are not widely traded, and that may be subject to purchase and sale restrictions.
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.
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.
Larger, more established companies may be unable to respond quickly to new competitive challenges such as changes in technology and consumer
tastes. Many larger companies also may not be able to attain the high growth rate of successful smaller companies, especially during extended periods
of economic expansion.
For purposes of the two investment policies with regard to investments in medium and smaller companies and large companies, the market
capitalization of a company is based on its capitalization at the time the Fund purchases the company’s securities. Market capitalizations of companies
change over time. The Fund is not obligated to sell a company’s security simply because, subsequent to its purchase, the company’s market
capitalization has changed to be outside the capitalization range for the Fund.
Funds that invest in securities traded principally in securities markets outside the United States are subject to additional and more varied risks, as the
value of non-U.S. securities may change more rapidly and extremely than the value of U.S. securities. Less information may be publicly available
regarding non-U.S. issuers. Non-U.S. securities may be subject to non-U.S. taxes any may be more volatile than U.S. securities. Currency fluctuations
and political and economic developments may adversely impact the value of foreign securities. The securities markets of many foreign countries are
relatively small, with a limited number of companies representing a small number of industries. Additionally, issuers of non-U.S. securities may not be
subject to the same degree of regulation as U.S. issuers. Reporting, accounting and auditing standards of foreign countries differ, in some cases
significantly, from U.S. standards. There generally are higher commission rates on non-U.S. portfolio transactions, transfer taxes, higher custodial costs
and the possibility that non-U.S. taxes will be charged on dividends and interest payable on non-U.S. securities, some or all of which may not be
reclaimable. Also, adverse changes in investment or exchange control regulations (which may include suspension of the ability to transfer currency or
assets from a country), political changes or diplomatic developments could adversely affect the Fund’s investments. In the event of nationalization,
expropriation, confiscatory taxation, or other confiscation, the Fund could lose a substantial portion of, or its entire investment in, a non-U.S. security.
Some of the non-U.S. securities risks also are applicable to funds that invest a material portion of their assets in securities of non-U.S. issuers traded in
the United States.
Repurchase Agreement Risk
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. The fund might also 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.
Small and Mid-Sized Company Risk
Market risk and liquidity risk may be pronounced for securities of companies with mid-sized market capitalizations and are particularly pronounced for
securities of companies with smaller market capitalizations. These companies may have limited product lines, markets or financial resources or they
may depend on a few key employees. The securities of companies with medium and smaller market capitalizations may trade less frequently and in
lesser volume than more widely held securities, and their value may fluctuate more sharply than those securities. They also may trade in the
over-the-counter market or on a regional exchange, or may otherwise have limited liquidity. Investments in less-seasoned companies with medium and
smaller market capitalizations may present greater opportunities for growth and capital appreciation, but also involve greater risks than customarily are
associated with more established companies with larger market capitalizations. For purposes of the fund’s investment policies, the market capitalization
of a company is based on its capitalization at the time the fund purchases the company’s securities. These risks apply to all funds that invest in the
securities of companies with smaller market capitalizations, each of which primarily makes investments in companies with small-or mid-sized market
capitalizations. Market capitalizations of companies change over time. The fund is not obligated to sell a company’s security simply because,
subsequent to its purchase, the company’s market capitalization has changed to be outside the capitalization range, if any, in effect for the fund.
Given the risks described above, an investment in Common Shares may not be appropriate for all investors. You should carefully consider your ability to
assume these risks before making an investment in the Fund.
The overall management of the Fund, including supervision of the duties performed by the Advisor, Epoch, is the responsibility of the Board, under the
laws of The Commonwealth of Massachusetts and the 1940 Act. The Trustees are responsible for the Fund’s overall management, including adopting
the investment and other policies of the Fund, electing and replacing officers and selecting and supervising the Fund’s Advisor and subadvisor. The
names and business addresses of the Trustees and officers of the Fund and their principal occupations and other affiliations during the past five years,
as well as a description of committees of the Board, are set forth under “Those Responsible for Management” in the SAI.
A discussion regarding the basis for the Trustees’ approval of the Advisory Agreement and the Subadvisory Agreement (each, as defined below) is
available in the Fund’s most recent annual shareholder report for the fiscal year ended October 31.
The Advisor, John Hancock Investment Management LLC, is a Delaware limited liability company whose principal offices are located at 200 Berkeley
Street, Boston, Massachusetts 02116 and serves as the Fund’s investment advisor. The Advisor is registered with the SEC as an investment advisor
under the Investment Advisers Act of 1940, as amended (the “Advisers Act”).
Founded in 1968, the Advisor is an indirect principally owned subsidiary of John Hancock Life Insurance Company (U.S.A.), a subsidiary of Manulife
Financial Corporation (“Manulife Financial” or the “Company”). Manulife Financial is the holding company of The Manufacturers Life Insurance Company
(the “Life Company”) and its subsidiaries. John Hancock Life Insurance Company (U.S.A.) and its subsidiaries (“John Hancock”) today offer a broad
range of financial products and services, including whole, term, variable, and universal life insurance, as well as college savings products, mutual funds,
fixed and variable annuities, long-term care insurance and various forms of business insurance.
The Advisor’s parent company has been helping individuals and institutions work toward their financial goals since 1862. The Advisor offers investment
solutions managed by institutional money managers, taking a disciplined team approach to portfolio management and research, leveraging the
expertise of seasoned investment professionals. The Advisor has been managing closed-end funds since 1971. As of December 31, 2023, the Advisor
had total assets under management of approximately $153.7 billion.
Subject to general oversight by the Board, the Advisor manages and supervises the investment operations and business affairs of the Fund. The Advisor
selects, contracts with and compensates one or more subadvisors to manage all or a portion of the Fund’s portfolio assets, subject to oversight by the
Advisor. In this role, the Advisor has supervisory responsibility for managing the investment and reinvestment of the Fund, as described in further detail
below. The Advisor is responsible for developing overall investment strategies for the Fund and overseeing and implementing the Fund’s continuous
investment program and provides a variety of advisory oversight and investment research services. The Advisor also provides management and
transition services associated with certain fund events (e.g., strategy, portfolio manager or subadvisor changes) and coordinates and oversees services
provided under other agreements.
The Advisor has ultimate responsibility to oversee a subadvisor and recommend to the Board of Trustees its hiring, termination, and replacement. In this
capacity, the Advisor, among other things: (i) monitors on a daily basis the compliance of the subadvisor with the investment objectives and related
policies of the fund; (ii) monitors significant changes that may impact the subadvisor’s overall business and regularly performs due diligence reviews of
the subadvisor; (iii) reviews the performance of the subadvisor; and (iv) reports periodically on such performance to the Board of Trustees. The Advisor
employs a team of investment professionals who provide these ongoing research and monitoring services.
Manulife Financial Corporation 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, New York Stock Exchange (the “NYSE”), and the Philippine
Stock Exchange, and under '945' in Hong Kong. Manulife Financial Corporation can be found on the Internet at manulife.com.
The Fund entered into an investment management contract dated July 1, 2009 (the “Advisory Agreement”) with the Advisor. As
compensation for its advisory services under the Advisory Agreement, the Advisor receives a fee from the Fund, calculated and paid daily, at an annual
rate of the Fund’s average daily gross assets. “Gross assets” means total assets of the Fund, including any form of investment leverage, minus all
accrued expenses incurred in the normal course of operations, but not excluding any liabilities or obligations attributable to investment leverage
obtained through (i) indebtedness of any type (including, without limitation, borrowing through a credit facility/commercial paper program or other
forms of borrowings or the issuance of debt securities), (ii) the issuance of preferred shares or other similar preference securities, and/or (iii) any other
means.
Pursuant to the Advisory Agreement and subject to the general supervision of the Trustees, the Advisor selects, contracts with, and compensates the
subadvisor to manage the investments and determine the composition of the assets of the Fund. The Advisor does not itself manage any of the Fund’s
portfolio assets but has ultimate responsibility to oversee the subadvisor and recommend their hiring, termination and replacement. In this capacity,
the Advisor monitors the subadvisor’s management of the Fund’s investment operations in accordance with the investment objectives and related
investment policies of the Fund, reviews the performance of the subadvisor and reports periodically on such performance to the Board.
The Fund entered into a management-related service contract dated July 1, 2009 and re-executed on January 1, 2014 (the
“Service Agreement”) with JHIM, under which the Fund receives Non-Advisory Services. These “Non-Advisory Services” include, but are not limited to,
legal, tax, accounting, valuation, financial reporting and performance, compliance, service provider oversight, portfolio and cash management, project
management office, EDGAR conversion and filing, graphic design, and other services that are not investment advisory in nature. JHIM is reimbursed for
its costs in providing Non-Advisory Services to the Fund under the Service Agreement.
The Advisor entered into a consulting agreement dated September 21, 2007 (“Consulting Agreement”) with its affiliate
Manulife Investment Management (North America) Limited (formerly, John Hancock Asset Management a Division of Manulife Asset Management
(North America) Limited) (“Manulife IM (NA)”). Manulife IM (NA) is located at 200 Bloor Street East, Toronto, ON, Canada, M4W1EW. Manulife IM (NA) is
a wholly-owned subsidiary of Manulife Financial, a publicly traded company based in Toronto, Canada. Manulife IM (NA) has been an investment advisor
since 1979 and manages registered investment companies. As of December 31, 2023, Manulife IM (NA) had approximately $19.94 billion in assets
under management.
Under the Consulting Agreement and as the Advisor may request from time to time, Manulife IM (NA) consults with the Advisor on matters relating to the
application of U.S. federal income tax laws and regulations to the operations of the Fund and assists the Advisor with compliance monitoring and the
implementation and use of compliance systems and in addressing and legal and regulatory matters related to the Fund. Manulife IM (NA) does not have
any day-to-day portfolio management responsibilities or regularly provide investment advice to the Advisor regarding the Fund and its portfolio. In return
for its consulting and other services, the Advisor (and not the Fund) pays Manulife IM (NA) a fee.
The Advisor entered into a Subadvisory Agreement dated June 27, 2013 with Epoch (the “Epoch Agreement”). Epoch handles the Fund’s portfolio
management activities, subject to oversight by the Advisor. Epoch, founded in 2004, is a wholly-owned subsidiary of The Toronto-Dominion Bank. As of
December 31, 2023, Epoch managed on a worldwide basis approximately $34.3 billion for mutual funds and institutional investors such as pension
plans, endowments and foundations. Epoch is located at 1 Vanderbilt Avenue, New York, NY 10017.
Under the terms of the Epoch Agreement, Epoch is responsible for implementing the Fund’s investment equity strategy on a day-to-day basis, all subject
to the supervision and direction of the Board and the Advisor. For services rendered by Epoch under the Epoch Agreement, the Advisor (and not the
Fund) pays Epoch a fee.
Below are lists of the Fund’s investment management team at the subadvisor, listed in alphabetical order, which include a brief summary of their
business careers during the past five years. The Epoch portfolio managers are jointly and primarily responsible for the day-to-day investment
management of the Fund’s portfolio. These portfolio managers are employed by the subadvisor. For more details about these individuals, including
information about their compensation, other accounts they manage and any investments they may have in the Fund, see the SAI.
Founder, Executive Chairman, Co-Chief Investment Officer and Portfolio Manager, Epoch Investment Partners, Inc. since 2004
Co-managing partner and portfolio manager
Began investment career in 1965
Managed the fund since 2007
Managing Director, Portfolio Manager, and Senior Research Analyst Epoch Investment Partners, Inc. since 2012
Began Business career in 1981
Managed the fund since 2014
Managing Director, Portfolio Manager, and Senior Research Analyst Epoch Investment Partners, Inc. since 2005
Began investment career in 2001
Managed the fund since 2014
Michael A. Welhoelter, CFA
Managing Director, Co-CIO, Portfolio Manager, Head of Risk Management Epoch Investment Partners, Inc. since 2005
Began business career in 1986
Managed the fund since 2007
As of March 31, 2024, William W. Priest, CFA will no longer serve as a portfolio manager.
Custodian and Transfer Agent
The Fund’s portfolio securities are held pursuant to a custodian agreement between the Fund and State Street Bank and Trust Company (“State Street”
or the “Custodian”), One Congress Street, Suite 1, Boston, Massachusetts 02114. Under the custodian agreement, State Street performs custody,
foreign custody manager and fund accounting services.
Computershare Shareowner Services, LLC, P.O. Box 43006, Providence, RI 02940-3078, is the transfer agent, dividend paying agent and registrar of
the Fund.
Determination of Net Asset Value
The fund’s net asset value per Common Share (“NAV”) is normally determined each business day at the close of regular trading on the NYSE (typically
4:00
p.m.
Eastern Time, on each business day that the NYSE is open) by dividing the fund’s net assets by the number of Common Shares outstanding. 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 Securities and Exchange
Commission and applicable regulations. On holidays or other days when the NYSE is closed, the NAV is not calculated. 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 Common Shares may be significantly affected on days when a shareholder will not be
able to purchase or sell the fund’s Common Shares.
The Board has designated the fund’s Advisor as the valuation designee to perform fair value functions for the 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
the 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
the 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 open-end investment companies that are not
exchange-traded funds (“ETFs”) held by the fund are valued based on the NAVs of such other investment companies.
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 the fund may hold or 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.
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 the 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). The use of fair value pricing has the effect of
valuing a security based upon the price the 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 the fund’s investment in an open-end investment company that is not an ETF, which (as noted above) is valued at such investment company’s
NAV, the prospectus for such investment company explains the circumstances and effects of fair value pricing for that investment company.
The Fund makes regular quarterly distributions to Common Shareholders which may consist of the Fund’s cash available for distribution and return of
capital. “Cash available for distribution” consists of the Fund’s (i) investment company taxable income, which includes among other things, dividend and
ordinary income after payment of Fund expenses, the excess of net short-term capital gain over net long-term capital loss, and income from certain
hedging and interest rate transactions, (ii) qualified dividend income and (iii) long-term capital gain (gain from the sale of capital assets held longer than
one year). The Board may modify this distribution policy at any time without obtaining the approval of Common Shareholders.
Expenses of the Fund are accrued each day. To the extent that the Fund’s net investment income for any year exceeds the total quarterly distributions
paid during the year, the Fund may make a special distribution at or near year-end of such excess amount as may be required. If it does, over time, all of
the Fund’s investment company taxable income will be distributed.
If, for any calendar year, as discussed above, the total distributions made exceed the Fund’s net investment taxable income and net capital gain, the
excess generally will be treated as a return of capital to each Common Shareholder (up to the amount of the Common Shareholder’s basis in his or her
Common Shares) and thereafter as gain from the sale of Common Shares. In each fiscal year the Fund has paid distributions, the Fund’s total
distributions exceeded the Fund’s net investment taxable income and net capital gain, and such excess was treated as a return of capital to each
Common Shareholder. The amount treated as a return of capital reduces the Common Shareholder’s adjusted basis in his or her Common Shares,
thereby increasing his or her potential gain or reducing his or her potential loss on the subsequent sale of his or her Common Shares. Distributions in
any year may include a substantial return of capital component.
Pursuant to the requirements of the 1940 Act, in the event the Fund makes distributions from sources other than income, a notice will accompany each
quarterly distribution with respect to the estimated source of the distribution made. Such notices will describe the portion, if any, of the quarterly
dividend which, in the Fund’s good faith judgment, constitutes long-term capital gain, short-term capital gain, investment company taxable income or a
return of capital. The actual character of such dividend distributions for U.S. federal income tax purposes, however, will only be determined finally by the
Fund at the close of its fiscal year, based on the Fund’s full year performance and its actual net investment company taxable income and net capital gain
for the year, which may result in a recharacterization of amounts distributed during such fiscal year from the characterization in the quarterly estimates.
At least annually, the Fund intends to distribute any net capital gain (which is the excess of net long-term capital gain over net short-term capital loss) or,
alternatively, to retain all or a portion of the year’s net capital gain and pay U.S. federal income tax on the retained gain. As provided under U.S. federal
tax law, if the Fund retains net capital gain, Common Shareholders of record as of the end of the Fund’s taxable year will include their attributable share
of the retained gain in their income for the year as a long-term capital gain, and will be entitled to a tax credit or refund for the tax deemed paid on their
behalf by the Fund. The Fund may treat the cash value of tax credit and refund amounts in connection with retained capital gain as a substitute for
equivalent cash distributions.
The tax treatment and characterization of the Fund’s distributions may vary substantially from time to time because of the varied nature of the Fund’s
investments. Distributions in any year may include a substantial return of capital component. A return of capital is a distribution to Common
Shareholders that is not attributable to the Fund’s earnings but, represents a return of part of the Common Shareholder’s investment. If the Fund’s
distributions exceed the Fund’s current and accumulated earnings and profits, such excess will be treated first as a return of capital to the extent of the
shareholder’s tax basis in Common Shares (thus reducing a shareholder’s adjusted tax basis in his or her Common Shares), and thereafter as capital
gain assuming Common Shares are held as a capital asset. Upon the sale of Common Shares, a shareholder generally will recognize capital gain or loss
equal to the difference between the amount realized on the sale and the shareholder’s adjusted tax basis in Common Shares sold. For example, in year
one, a Common Shareholder purchased 100 shares of the Fund at $10 per Share. In year two, the Common Shareholder received a $1-per-share return
of capital distribution, which reduced the basis in each share by $1, to give the Common Shareholder an adjusted basis of $9 per share. In year three,
the Common Shareholder sells the 100 shares for $15 per Share. Assuming no other transactions during this period, a Common Shareholder would
have a capital gain in year three of $6 per share ($15 minus $9) for a total capital gain of $600. Under the 1940 Act, for any distribution that includes
amounts from sources other than net income (calculated on a book basis), the Fund is required to provide Common Shareholders a written statement
regarding the components of such distribution. Such a statement will be provided at the time of any distribution believed to include any such amounts.
The 1940 Act currently limits the number of times the Fund may distribute long-term capital gain in any tax year, which may increase the variability of
the Fund’s distributions and result in certain distributions being comprised more heavily of long-term capital gain eligible for favorable income tax rates.
In the future, the Advisor may seek Board approval to implement a managed distribution plan for the Fund. The managed distribution plan would be
implemented pursuant to an exemptive order previously granted by the SEC, which provides an exemption from Section 19(b) of the 1940 Act and
Rule 19b-1 thereunder to permit the Fund to include long-term capital gain as a part of its regular distributions to Common Shareholders more
frequently than would otherwise be permitted by the 1940 Act (generally once or twice per year). If the Fund implements a managed distribution plan, it
would do so without a vote of the Common Shareholders.
The distributions paid by the Fund for any particular quarter may be more or less than the amount of cash available for distribution from that quarterly
period. In certain circumstances, the Fund may be required to sell a portion of its investment portfolio to fund distributions. Distributions will reduce the
Common Shares’ NAV.
Common Shareholders may automatically reinvest some or all of their distributions in additional Common Shares under the Fund’s dividend
reinvestment plan. See “Dividend Reinvestment Plan.”
Dividend Reinvestment Plan
Pursuant to the Fund’s Dividend Reinvestment Plan (the “Plan”), distributions of dividends and capital gain are automatically reinvested in Common
Shares by Computershare Trust Company, N.A. (the “Plan Agent”). Every shareholder holding at least one full share of the Fund is automatically enrolled
in the Plan. Shareholders who do not participate in the Plan will receive all distributions in cash.
If the Fund declares a dividend or distribution payable either in cash or in Common Shares and the market price of shares on the payment date for the
distribution or dividend equals or exceeds the Fund’s NAV per share, the Fund will issue Common Shares to participants at a value equal to the higher of
NAV or 95% of the market price. The number of additional Common Shares to be credited to each participant’s account will be determined by dividing
the dollar amount of the distribution or dividend by the higher of NAV or 95% of the market price. If the market price is lower than NAV, or if dividends or
distributions are payable only in cash, then participants will receive Common Shares purchased by the Plan Agent on participants’ behalf on the NYSE or
otherwise on the open market. If the market price exceeds NAV before the Plan Agent has completed its purchases, the average per share purchase
price may exceed NAV, resulting in fewer Common Shares being acquired than if the Fund had issued new Common Shares.
There are no brokerage charges with respect to Common Shares issued directly by the Fund. However, whenever shares are purchased or sold on the
NYSE or otherwise on the open market, each participant will pay a pro rata portion of brokerage trading fees, currently $0.05 per share purchased or
sold. Brokerage trading fees will be deducted from amounts to be invested.
The reinvestment of dividends and net capital gain distributions does not relieve participants of any income tax that may be payable on such dividends
or distributions even though cash is not received by the participant.
Shareholders participating in the Plan may buy additional Common Shares of the Fund through the Plan at any time in amounts of at least $50 per
investment, up to a maximum of $10,000, with a total calendar year limit of $100,000. Shareholders will be charged a $5 transaction fee plus $0.05
per share brokerage trading fee for each order. Purchases of additional shares of the Fund will be made on the open market. Shareholders who elect to
utilize monthly electronic fund transfers to buy additional shares of the Fund will be charged a $2 transaction fee plus $0.05 per share brokerage
trading fee for each automatic purchase. Shareholders also can sell Fund shares held in the Plan account at any time by contacting the Plan Agent by
telephone, in writing or by visiting the Plan Agent’s website at www.computershare.com/investor. The Plan Agent will mail a check (less applicable
brokerage trading fees) on settlement date. Pursuant to regulatory changes, effective September 5, 2017, the settlement date is changed from three
business days after the shares have been sold to two business days after the shares have been sold. If shareholders choose to sell shares through their
stockbroker, they will need to request that the Plan Agent electronically transfer those shares to their stockbroker through the Direct Registration
System.
Shareholders participating in the Plan may elect to receive all distributions in cash by withdrawing from the Plan at any time by contacting the Plan
Agent by telephone, in writing or by visiting the Plan Agent’s website at www.computershare.com/investor. Such termination will be effective
immediately if the notice is received by the Plan Agent prior to any dividend or distribution record date; otherwise, such termination will be effective on
the first trading day after the payment date for such dividend or distribution, with respect to any subsequent dividend or distribution. If you withdraw,
your shares will be credited to your account; or, if you wish, the Plan Agent will sell your full and fractional shares and send you the proceeds, less a
transaction fee of $5.00 and less brokerage trading fees of $0.05 per share. If a shareholder does not maintain at least one whole share of common
stock in the Plan account, the Plan Agent may terminate such shareholder’s participation in the Plan after written notice. Upon termination,
shareholders will be sent a check for the cash value of any fractional share in the Plan account, less any applicable broker commissions and taxes.
Shareholders who hold at least one full share of the Fund may join the Plan by notifying the Plan Agent by telephone, in writing or by visiting the Plan
Agent’s website at www.computershare.com/investor. If received in proper form by the Plan Agent before the record date of a dividend, the election will
be effective with respect to all dividends paid after such record date. If you wish to participate in the Plan and your shares are held in the name of a
brokerage firm, bank or other nominee, please contact your nominee to see if it will participate in the Plan for you. If you wish to participate in the Plan,
but your brokerage firm, bank or other nominee is unable to participate on your behalf, you will need to request that your shares be re-registered in your
own name, or you will not be able to participate. The Plan Agent will administer the Plan on the basis of the number of shares certified from time to time
by you as representing the total amount registered in your name and held for your account by your nominee.
Experience under the Plan may indicate that changes are desirable. Accordingly, the Fund and the Plan Agent reserve the right to amend or terminate
the Plan. Participants generally will receive written notice at least 90 days before the effective date of any amendment. In the case of termination,
participants will receive written notice at least 90 days before the record date for the payment of any dividend or distribution by the Fund.
All correspondence or additional information about the Plan should be directed to Computershare Trust Company, N.A., (Telephone: 800-852-0218
(within the United States and Canada), 201-680-6578 (International Telephone Inquiries), and 201-680-6610 (For the Hearing Impaired (TDD)).
Closed-End Fund Structure
Closed-end funds differ from open-end management investment companies (which generally are referred to as “mutual funds”) in that closed-end funds
generally list their shares for trading on a securities exchange and do not redeem their shares at the option of the shareholder. Mutual funds do not
trade on securities exchanges and issue securities redeemable at the option of the shareholder. The continuous outflows of assets in a mutual fund can
make it difficult to manage the Fund’s investments. Closed-end funds generally are able to stay more fully invested in securities that are consistent with
their investment objectives and also have greater flexibility to make certain types of investments and to use certain investment strategies, such as
financial leverage and investments in illiquid securities. The Common Shares are designed primarily for long-term investors; you should not purchase
Common Shares if you intend to sell them shortly after purchase.
Common shares of closed-end funds frequently trade at prices lower than their NAV. Since inception, the market price of the Common Shares has
fluctuated and at times has traded below the Fund’s NAV and at times has traded above the Fund’s NAV. The Fund cannot predict whether in the future
the Common Shares will trade at, above or below NAV. In addition to NAV, the market price of the Common Shares may be affected by such factors as
the Fund’s dividend stability, dividend levels, which are in turn affected by expenses, and market supply and demand.
In recognition of the possibility that Common Shares may trade at a discount from their NAV, and that any such discount may not be in the best interest
of Common Shareholders, the Board, in consultation with the Advisor, from time to time may review possible actions to reduce any such discount. There
can be no assurance that the Board will decide to undertake any of these actions or that, if undertaken, such actions would result in Common Shares
trading at a price equal to or close to NAV per Common Share. In the event that the Fund conducts an offering of new Common Shares and such offering
constitutes a “distribution” under Regulation M, the Fund and certain of its affiliates may be subject to an applicable restricted period that could limit the
timing of any repurchases by the Fund.
U.S. Federal Income Tax Matters
The following discussion of U.S. federal income tax matters is based on the advice of K&L Gates LLP, counsel to the Fund. The Fund has elected to be
treated and to qualify each year as a regulated investment company (a “RIC”) under the Code. Accordingly, the Fund intends to satisfy certain
requirements relating to sources of its income and diversification of its total assets and to distribute substantially all of its net income and net
short-term capital gain (after reduction by net long-term capital loss and any available capital loss carryforwards) in accordance with the timing
requirements imposed by the Code, so as to maintain its RIC status and to avoid paying U.S. federal income or excise tax thereon. To the extent it
qualifies for treatment as a RIC and satisfies the above-mentioned distribution requirements, the Fund will not be subject to U.S. federal income tax on
income paid to its shareholders in the form of dividends or capital gain distributions.
For U.S. federal income tax purposes, distributions paid out of the 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 the 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 (maximum rates of 20%, l5%, or 0% for individuals depending on the amount of their taxable income for the year). This tax
treatment applies only if certain holding period requirements and other requirements are satisfied by the shareholder and the dividends are attributable
to qualified dividend income received by the Fund itself. For this purpose, “qualified dividend income” means dividends received by the Fund from
United States corporations and “qualified foreign corporations,” provided that the Fund satisfies certain holding period and other requirements in
respect of the stock of such corporations. There can be no assurance as to what portion of the Fund's dividend distributions will qualify for favorable
treatment as qualified dividend income. An additional 3.8% Medicare tax will also apply in the case of some individuals.
At least annually, the Fund intends to distribute any net capital gain (which is the excess of net long-term capital gain over net short-term capital loss) or,
alternatively, to retain all or a portion of the year’s net capital gain and pay U.S. federal income tax on the retained gain. As provided under U.S. federal
tax law, if the Fund retains net capital gain, Common Shareholders of record as of the end of the Fund’s taxable year will include their attributable share
of the retained gain in their income for the year as long-term capital gain (regardless of holding period in Common Shares), and will be entitled to a tax
credit or refund for the tax paid on their behalf by the Fund. Common Shareholders of record for the retained capital gain also will be entitled to increase
their tax basis in their Common Shares by an amount equal to the deemed distribution less the tax credit. Distributions of the Fund’s net capital gain
(“capital gain distributions”), if any, are taxable to Common Shareholders as long-term capital gain, regardless of their holding period in Common
Shares. Distributions of the Fund’s net realized short-term capital gain will be taxable as ordinary income.
If, for any calendar year, the Fund’s total distributions exceed the Fund’s current and accumulated earnings and profits, the excess will be treated as a
return of capital to each Common Shareholder (up to the amount of the Common Shareholder’s basis in his or her Common Shares) and thereafter as
gain from the sale of Common Shares (assuming Common Shares are held as a capital asset). In each fiscal year the Fund has paid distributions, the
Fund’s total distributions exceeded the Fund’s current and accumulated earnings and profits, and such excess was treated as a return of capital to each
Common Shareholder. The amount treated as a return of capital reduces the Common Shareholder’s adjusted basis in his or her Common Shares,
thereby increasing his or her potential gain or reducing his or her potential loss on the subsequent sale or other disposition of his or her Common
Shares. See below for a summary of the current maximum tax rates applicable to long-term capital gain (including capital gain distributions). A
corporation that owns Fund shares may be eligible for the dividends received deduction (“DRD”) with respect to a portion of the distributions it receives
from the Fund, provided the Fund designates the eligible portion and the corporate shareholder satisfies certain holding period requirements. Fund
distributions that are attributable to qualified dividend income received by the Fund from certain domestic corporations may be designated by the Fund
as being eligible for the DRD.
For federal income tax purposes, the Fund is generally permitted to carry forward a net capital loss incurred in any taxable year for an unlimited period
to offset net capital gains, if any, during its taxable years following the year of the loss. Capital losses carried forward will retain their character as either
short-term or long-term capital losses. To the extent subsequent net capital gains are offset by such losses, they would not result in federal income tax
liability to the Fund and would not be distributed as such to shareholders.
To qualify as a RIC for income tax purposes, the Fund must derive at least 90% of its annual gross income from dividends, interest, payments with
respect to securities loans, gains from the sale or other disposition of stock, securities or foreign currencies, or other income (including, but not limited
to, gain from options, futures or forward contracts) derived with respect to its business of investing in stock, securities and currencies, and net income
derived from an interest in a qualified publicly traded partnership. A “qualified publicly traded partnership” is a publicly traded partnership that meets
certain requirements with respect to the nature of its income. To qualify as a RIC, the Fund must also satisfy certain requirements with respect to the
diversification of its assets. The Fund must have, at the close of each quarter of the taxable year, at least 50% of the value of its total assets represented
by cash, cash items, U.S. government securities, securities of other regulated investment companies, and other securities that, in respect of any one
issuer, do not represent more than 5% of the value of the assets of the Fund nor more than 10% of the voting securities of that issuer. In addition, at
those times not more than 25% of the value of the Fund’s assets can be invested in securities (other than U.S. government securities or the securities of
other regulated investment companies) of any one issuer, or of two or more issuers, which the Fund controls and which are engaged in the same or
similar trades or businesses or related trades or businesses, or of one or more qualified publicly traded partnerships. If the 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 the
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 6 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.
As a RIC, the Fund generally will not be subject to federal income tax on its investment company taxable income (as that term is defined in the Code, but
without regard to the deduction for dividends paid) and net capital gain (the excess of net long-term capital gain over net short-term capital loss), if any,
that it distributes in each taxable year to its shareholders, provided that it distributes at least the sum of 90% of its investment company taxable income
and 90% of its net tax-exempt interest income for such taxable year. The Fund intends to distribute to its shareholders, at least annually, substantially all
of its investment company taxable income, net tax-exempt income and net capital gain. In order to avoid incurring a nondeductible 4% federal excise tax
obligation, the Code requires that the Fund distribute (or be deemed to have distributed) by December 31 of each calendar year an amount at least
equal to the sum of (i) 98% of its ordinary income for such year, (ii) 98.2% of its capital gain net income (which is the excess of its realized net long-term
capital gain over its realized net short-term capital loss), generally computed on the basis of the one-year period ending on October 31 of such year,
after reduction by any available capital loss carryforwards and (iii) 100% of any ordinary income and capital gain net income from the prior year (as
previously computed) that were not paid out during such year and on which the Fund paid no U.S. federal income tax.
If the Fund does not qualify as a RIC for any taxable year, the Fund’s taxable income will be subject to corporate income taxes, and all distributions from
earnings and profits, including distributions of net capital gain (if any), will be taxable to the shareholder as ordinary income. Such distributions
generally would be eligible (i) to be treated as qualified dividend income in the case of individual and other non-corporate shareholders and (ii) for the
DRD in the case of corporate shareholders. In addition, in order to requalify for taxation as a RIC, the Fund may be required to recognize unrealized gain,
pay substantial taxes and interest, and make certain distributions.
Certain of the Fund’s investment practices are subject to special and complex U.S. federal income tax provisions that may, among other things, (i)
convert dividends that would otherwise constitute qualified dividend income into ordinary income, (ii) treat dividends that would otherwise be eligible
for the corporate DRD as ineligible for such treatment, (iii) disallow, suspend or otherwise limit the allowance of certain loss or deductions, (iv) convert
long-term capital gain into short-term capital gain or ordinary income, (v) convert an ordinary loss or deduction into a capital loss (the deductibility of
which is more limited), (vi) cause the Fund to recognize income or gain without a corresponding receipt of cash, (vii) adversely affect when a purchase or
sale of stock or securities is deemed to occur, (viii) adversely alter the characterization of certain complex financial transactions, and (ix) produce
income that will not qualify as good income for purposes of the income requirement that applies to RICs. While it may not always be successful in doing
so, the Fund will seek to avoid or minimize the adverse tax consequences of its investment practices.
The Fund may recognize gain (but not loss) from a constructive sale of certain “appreciated financial positions” if the Fund enters into a short sale,
offsetting notional principal contract, or forward contract transaction with respect to the appreciated position or substantially identical property.
Appreciated financial positions subject to this constructive sale treatment include interests (including options and forward contracts and short sales) in
stock and certain other instruments. Constructive sale treatment does not apply if the transaction is closed out not later than thirty days after the end of
the taxable year in which the transaction was initiated, and the underlying appreciated securities position is held unhedged for at least the next sixty
days after the hedging transaction is closed.
Gain or loss from a short sale of property generally is considered as capital gain or loss to the extent the property used to close the short sale
constitutes a capital asset in the Fund’s hands. Except with respect to certain situations where the property used to close a short sale has a long-term
holding period on the date the short sale is entered into, gain on short sales generally are short-term capital gain. A loss on a short sale will be treated as
a long-term capital loss if, on the date of the short sale, “substantially identical property” has been held by the Fund for more than one year. In addition,
entering into a short sale may result in suspension of the holding period of “substantially identical property” held by the Fund.
Gain or loss on a short sale generally will not be realized until such time as the short sale is closed. However, as described above in the discussion of
constructive sales, if the Fund holds a short sale position with respect to securities that have appreciated in value, and it then acquires property that is
the same as or substantially identical to the property sold short, the Fund generally will recognize gain on the date it acquires such property as if the
short sale were closed on such date with such property. Similarly, if the Fund holds an appreciated financial position with respect to securities and then
enters into a short sale with respect to the same or substantially identical property, the Fund generally will recognize gain as if the appreciated financial
position were sold at its fair market value on the date it enters into the short sale. The subsequent holding period for any appreciated financial position
that is subject to these constructive sale rules will be determined as if such position were acquired on the date of the constructive sale.
Currently, certain dividend distributions paid by the Fund (whether paid in cash or reinvested in additional Common Shares) to individual taxpayers are
taxed at rates applicable to net long-term capital gain (currently 20%, 15%, or 0% for individuals depending on the amount of their taxable income for
the year). This tax treatment applies only if certain holding period and other requirements are satisfied by the Common Shareholder, as discussed
below, and the dividends are attributable to qualified dividend income received by the Fund itself. For this purpose, “qualified dividend income” means
dividends received by the Fund from U.S. corporations and “qualified foreign corporations,” provided that the Fund satisfies certain holding period and
other requirements in respect of the stock of such corporations. An additional 3.8% Medicare tax will also apply in the case of some individuals.
Subject to certain exceptions, a “qualified foreign corporation” is any foreign corporation that is either (i) incorporated in a possession of the
United States (the “possessions test”), or (ii) eligible for benefits of a comprehensive income tax treaty with the United States that the Secretary of the
Treasury determines is satisfactory for these purposes and which includes an exchange of information program (the “treaty test”). Subject to the same
exceptions, a foreign corporation that does not satisfy either the possessions test or the treaty test will still be considered a “qualified foreign
corporation” with respect to any dividend paid by such corporation if the stock with respect to which such dividend is paid is readily tradable on an
established securities market in the United States. The Treasury Department has issued a notice stating that common or ordinary stock, or an ADR in
respect of such stock, is considered “readily tradable” if it is listed on a national securities exchange that is registered under section 6 of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), or on the Nasdaq system. Foreign corporations that are passive foreign investment
companies (as defined by the Code) will not be “qualified foreign corporations.”
In order for qualified dividends paid by the Fund to a Common Shareholder to be taxable at long-term capital gain rates, the Common Shareholder must
hold his or her Common Shares for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date. For dividends the Fund
receives to qualify for tax-advantaged treatment, the Fund must hold securities paying qualified dividend income for more than 60 days during the
121-day period beginning 60 days before the ex-dividend date (or more than 90 days during the associated 181-day period, in the case of certain
preferred securities). In addition, neither a Common Shareholder nor the Fund can be obligated to make related payments (pursuant to a short sale or
otherwise) with respect to positions in any security that is substantially similar or related property with respect to his or her Common Shares or such
stock, respectively. Gain on option positions treated as short-term and other short-term capital gain, interest income and non-qualified dividends are
not eligible for the lower tax rate. There can be no assurance as to what portion of the Fund’s dividend distributions will qualify for favorable treatment as
qualified dividend income. The Fund’s investment program and the tax treatment of Fund distributions may be affected by the IRS’s interpretations of the
Code and future changes in tax laws and regulations.
The Fund will inform Common Shareholders of the source and tax status of all distributions promptly after the close of each calendar year.
Selling Common Shareholders generally will recognize gain or loss in an amount equal to the difference between the amount realized on the sale and the
Common Shareholder’s adjusted tax basis in the Common Shares sold. If Common Shares are held as a capital asset, the gain or loss will be a capital
gain or loss. The maximum tax rate applicable to net capital gain recognized by individuals and other non-corporate taxpayers is (i) the same as the
maximum ordinary income tax rate for gain recognized on the sale of capital assets held for one year or less (currently 37%), or (ii) for gain recognized
on the sale of capital assets held for more than one year (as well as any capital gain distributions), 20%, 15%, or 0% for individuals depending on the
amount of their taxable income for the year. An additional 3.8% Medicare tax will also apply in the case of some individuals.
Any loss on a disposition of Common Shares held for six months or less will be treated as a long-term capital loss to the extent of any capital gain
distributions received with respect to those Common Shares. For purposes of determining whether Common Shares have been held for six months or
less, the holding period is suspended for any periods during which the Common Shareholder’s risk of loss is diminished as a result of holding one or
more other positions in substantially similar or related property, or through certain options or short sales. Any loss realized on a sale or exchange of
Common Shares will be disallowed to the extent those Common Shares are replaced by other Common Shares within a period of 61 days beginning
30 days before and ending 30 days after the date of disposition of Common Shares (whether through the reinvestment of distributions or otherwise). In
that event, the basis of the replacement Common Shares will be adjusted to reflect the disallowed loss.
An investor should be aware that, if Common Shares are purchased shortly before the record date for any taxable distribution (including a capital gain
distribution), the purchase price likely will reflect the value of the distribution and the investor then would receive a taxable distribution that is likely to
reduce the trading value of such Common Shares, in effect resulting in a taxable return of some of the purchase price.
Taxable distributions to certain individuals and certain other non-corporate Common Shareholders, including those who have not provided their correct
taxpayer identification number and other required certifications, may be subject to “backup” U.S. federal income tax withholding at the fourth lowest
rate of tax applicable to a single individual (24%). Backup withholding is not an additional tax. Any amounts withheld may be refunded or credited
against such shareholder’s U.S. federal income tax liability, if any, provided that the required information is furnished to the Internal Revenue Service.
An investor also should be aware that the benefits of the reduced tax rate applicable to long-term capital gain and qualified dividend income may be
impacted by the application of the alternative minimum tax to individual shareholders.
The Fund’s investments in non-U.S. securities may be subject to foreign withholding taxes on dividends, interest, or capital gain, which will decrease the
Fund’s yield. Foreign withholding taxes may be reduced under income tax treaties between the United States and certain foreign jurisdictions.
Depending on the number of non-U.S. shareholders in the Fund, however, such reduced foreign withholding tax rates may not be available for
investments in certain jurisdictions.
The foregoing briefly summarizes some of the important U.S. federal income tax consequences to Common Shareholders of investing in Common
Shares, reflects the U.S. federal tax law as of the date of this Prospectus, and does not address special tax rules applicable to certain types of investors,
such as corporate and non-U.S. investors. A more complete discussion of the tax rules applicable to the Fund and the Common Shareholders can be
found in the SAI that is incorporated by reference into this Prospectus. Unless otherwise noted, this discussion assumes that an investor is a
U.S. person and holds Common Shares as a capital asset. This discussion is based upon current provisions of the Code, the regulations promulgated
thereunder, and judicial and administrative ruling authorities, all of which are subject to change or differing interpretations by the courts or the IRS
retroactively or prospectively. Investors should consult their tax advisors regarding other U.S. federal, state or local tax considerations that may be
applicable in their particular circumstances, as well as any proposed tax law changes.
The Fund may sell the Common Shares being offered under this Prospectus in any one or more of the following ways: (i) directly to purchasers; (ii)
through agents; (iii) to or through underwriters; or (iv) through dealers. The Prospectus Supplement relating to the offering will identify any agents,
underwriters or dealers involved in the offer or sale of Common Shares, and will set forth any applicable offering price, sales load, fee, commission or
discount arrangement between the Fund and its agents or underwriters, or among its underwriters, or the basis upon which such amount may be
calculated, net proceeds and use of proceeds, and the terms of any sale.
The Fund may distribute Common Shares from time to time in one or more transactions at: (i) a fixed price or prices, which may be changed; (ii) market
prices prevailing at the time of sale; (iii) prices related to prevailing market prices; or (iv) negotiated prices; provided, however, that in each case the
offering price per Common Share (less any underwriting commission or discount) must equal or exceed the NAV per Common Share.
The Fund from time to time may offer its Common Shares through or to certain broker-dealers, including UBS Securities LLC, that have entered into
selected dealer agreements relating to at-the-market offerings.
The Fund may directly solicit offers to purchase Common Shares, or the Fund may designate agents to solicit such offers. The Fund will, in a Prospectus
Supplement relating to such offering, name any agent that could be viewed as an underwriter under the Securities Act of 1933, as amended (the
“Securities Act”), and describe any commissions the Fund must pay. Any such agent will be acting on a best efforts basis for the period of its
appointment or, if indicated in the applicable Prospectus Supplement or other offering materials, on a firm commitment basis. Agents, dealers and
underwriters may be customers of, engage in transactions with, or perform services for the Fund in the ordinary course of business.
If any underwriters or agents are used in the sale of Common Shares in respect of which this Prospectus is delivered, the Fund will enter into an
underwriting agreement or other agreement with them at the time of sale to them, and the Fund will set forth in the Prospectus Supplement relating to
such offering their names and the terms of the Fund’s agreement with them.
If a dealer is utilized in the sale of Common Shares in respect of which this Prospectus is delivered, the Fund will sell such Common Shares to the dealer,
as principal. The dealer may then resell such Common Shares to the public at varying prices to be determined by such dealer at the time of resale.
The Fund may engage in at-the-market offerings to or through a market maker or into an existing trading market, on an exchange or otherwise, in
accordance with Rule 415(a)(4) under the Securities Act. An at-the-market offering may be through an underwriter or underwriters acting as principal
or agent for the Fund.
Agents, underwriters and dealers may be entitled under agreements which they may enter into with the Fund to indemnification by the Fund against
certain civil liabilities, including liabilities under the Securities Act, and may be customers of, engage in transactions with or perform services for the
Fund in the ordinary course of business.
In order to facilitate the offering of Common Shares, any underwriters may engage in transactions that stabilize, maintain or otherwise affect the price
of Common Shares or any other Common Shares the prices of which may be used to determine payments on the Common Shares. Specifically, any
underwriters may over-allot in connection with the offering, creating a short position for their own accounts. In addition, to cover over-allotments or to
stabilize the price of Common Shares or of any such other Common Shares, the underwriters may bid for, and purchase, Common Shares or any such
other Common Shares in the open market. Finally, in any offering of Common Shares through a syndicate of underwriters, the underwriting syndicate
may reclaim selling concessions allowed to an underwriter or a dealer for distributing Common Shares in the offering if the syndicate repurchases
previously distributed Common Shares in transactions to cover syndicate short positions, in stabilization transactions or otherwise. Any of these
activities may stabilize or maintain the market price of Common Shares above independent market levels. Any such underwriters are not required to
engage in these activities and may end any of these activities at any time.
The Fund may enter into derivative transactions with third parties, or sell Common Shares not covered by this Prospectus to third parties in privately
negotiated transactions. If the applicable Prospectus Supplement indicates, in connection with those derivatives, the third parties may sell Common
Shares covered by this Prospectus and the applicable Prospectus Supplement or other offering materials, including in short sale transactions. If so, the
third parties may use Common Shares pledged by the Fund or borrowed from the Fund or others to settle those sales or to close out any related open
borrowings of securities, and may use Common Shares received from the Fund in settlement of those derivatives to close out any related open
borrowings of securities. The third parties in such sale transactions will be underwriters and, if not identified in this Prospectus, will be identified in the
applicable Prospectus Supplement or other offering materials (or a post-effective amendment).
The Fund or one of the Fund’s affiliates may loan or pledge Common Shares to a financial institution or other third party that in turn may sell Common
Shares using this Prospectus. Such financial institution or third party may transfer its short position to investors in Common Shares or in connection
with a simultaneous offering of other Common Shares offered by this Prospectus or otherwise.
The maximum amount of compensation to be received by any member of the Financial Industry Regulatory Authority, Inc. will not exceed 8% of the
initial gross proceeds from the sale of any security being sold with respect to each particular offering of Common Shares made through a single
Prospectus Supplement.
Any underwriter, agent or dealer utilized in the initial offering of Common Shares will not confirm sales to accounts over which it exercises discretionary
authority without the prior specific written approval of its customer.
Description of Capital Structure
The fund is a business trust established under the laws of The Commonwealth of Massachusetts by the Declaration of Trust dated and filed with the
Secretary of The Commonwealth on April 23, 2007, as may be amended from time to time. The Declaration of Trust provides that the Board may
authorize separate classes of shares of beneficial interest. The Board has authorized an unlimited number of Common Shares. The fund holds annual
meetings of Common Shareholders in compliance with the requirements of the NYSE.
The Declaration of Trust permits the fund to issue an unlimited number of full and fractional Common Shares of beneficial interest, $0.01 par value per
share. Each Common Share represents an equal proportionate interest in the assets of the fund with each other Common Share in the fund. Holders of
Common Shares will be entitled to the payment of distributions when, and if declared by the fund. The 1940 Act or the terms of any future borrowings or
issuance of preferred shares may limit the payment of distributions to the holders of Common Shares. Each whole Common Share is entitled to one vote
and each fractional Common Share is entitled to a proportionate fractional vote as to matters on which it is entitled to vote pursuant to the terms of the
Declaration of Trust. Upon liquidation of the fund, after paying or adequately providing for the payment of all liabilities of the fund and the liquidation
preference with respect to any outstanding preferred shares, and upon receipt of such releases, indemnities and refunding agreements as they deem
necessary for their protection, the Board may distribute the remaining assets of the fund among the holders of Common Shares. The Declaration of
Trust provides that Common Shareholders are not liable for any liabilities of the fund, and requires inclusion of a clause to that effect in agreements
entered into by the fund and, in coordination with the fund’s by-laws (the “By-laws”), indemnifies shareholders against any such liability. Although
shareholders of a business trust established under Massachusetts law, in certain limited circumstances, may be held personally liable for the
obligations of the business trust as though they were general partners, the provisions of the Declaration of Trust and By-laws described in the foregoing
sentence make the likelihood of such personal liability remote. The fund will not issue Common Share certificates.
The fund has no current intention to borrow money or to issue preferred shares. However, if at some future time there are any borrowings or preferred
shares outstanding, subject to certain exceptions, the fund might not be permitted to declare any cash distribution on its Common Shares, unless at the
time of such declaration, (i) all accrued distributions on preferred shares and accrued interest on borrowings, if any, have been paid and (ii) the value of
the fund’s total assets (determined after deducting the amount of any such distribution), less all liabilities and indebtedness of the fund not represented
by senior securities, is at least 300% of the aggregate amount of any securities representing indebtedness and at least 200% of the aggregate amount
of any securities representing indebtedness plus the aggregate liquidation value of the outstanding preferred shares. In addition to the requirements of
the 1940 Act, the fund may be required to comply with other asset coverage requirements under a credit facility or as a condition of the fund obtaining a
rating of preferred shares from a nationally recognized statistical rating organization (a “Rating Agency”). These requirements may include an asset
coverage test more stringent than under the 1940 Act. This limitation on the fund’s ability to make distributions on its Common Shares could in certain
circumstances impair the ability of the fund to maintain its qualification for taxation as a RIC for U.S. federal income tax purposes. If the fund were in the
future to borrow money or issue preferred shares, it would intend, however, to the extent possible, to reduce borrowings or purchase or redeem
preferred shares from time to time to maintain compliance with such asset coverage requirements and may pay special distributions to the holders of
the preferred shares in certain circumstances in connection with any potential impairment of the fund’s status as a RIC. Depending on the timing of any
such redemption or repayment, the fund may be required to pay a premium in addition to the liquidation preference of the preferred shares to the
holders thereof.
The fund has no present intention of offering additional Common Shares, except as described herein. Other offerings of its Common Shares, if made,
will require approval of the Board. Any additional offering will not be sold at a price per Common Share below the then current NAV (exclusive of
underwriting discounts and commissions) except in connection with an offering to existing Common Shareholders or with the consent of a majority of
the fund’s outstanding Common Shares. Common Shares have no preemptive rights.
The fund has no current intention to utilize leverage through borrowing. However, in the event the fund borrows, the fund may enter into definitive
agreements with respect to a credit facility in an amount not to exceed the limits permitted under the 1940 Act. Such a facility is not expected to be
convertible into any other securities of the fund, outstanding amounts are expected to be prepayable by the fund prior to final maturity without
significant penalty and there are not expected to be any sinking fund or mandatory retirement provisions. Outstanding amounts would be payable at
maturity or such earlier times as required by the agreement. The fund may be required to prepay outstanding amounts under the facility or incur a
penalty rate of interest in the event of the occurrence of certain events of default. The fund would be expected to indemnify the lenders under the facility
against liabilities they may incur in connection with the facility. The fund may be required to pay commitment fees under the terms of any such facility.
In addition, the fund expects that such a credit facility would contain covenants that, among other things, likely will limit the fund’s ability to pay
dividends in certain circumstances, incur additional debt, change its fundamental investment policies and engage in certain transactions, including
mergers and consolidations, and may require asset coverage ratios in addition to those required by the 1940 Act. The fund may be required to pledge
its assets and to maintain a portion of its total assets in cash or high-grade securities as a reserve against interest or principal payments and expenses.
The fund expects that any credit facility would have customary covenant, negative covenant and default provisions. There can be no assurance that the
fund will enter into an agreement for a credit facility on terms and conditions representative of the foregoing, or that additional material terms will not
apply. If entered into, any such credit facility may in the future be replaced or refinanced by one or more credit facilities having substantially different
terms. In addition, new Rule 18f-4 may impact how the fund uses leverage and certain borrowings and other investments. See “Hedging, Derivative and
Other Strategic Transactions Risk” for additional information.
Repurchase of Shares and Other Discount Measures
In recognition of the possibility that Common Shares might trade at a discount to NAV and that any such discount may not be in the interest of the fund’s
shareholders, the Board, in consultation with the Advisor, from time to time may review possible actions to help reduce any such discount. The Board, in
consultation with the Advisor, may review the possibility of open market repurchases and/or tender offers for the Common Shares and consider such
factors as the market price of the Common Shares, the NAV of the Common Shares, the liquidity of the assets of the fund, effect on the fund’s expenses,
whether such transactions would impair the fund’s status as a RIC or result in a failure to comply with applicable asset coverage requirements, general
economic conditions and such other events or conditions, which may have a material effect on the fund’s ability to consummate such transactions.
There are no assurances that the Board will, in fact, decide to undertake either of these actions or, if undertaken, that such actions will result in the
Common Shares trading at a price which is equal to or approximates their NAV.
In the event that the fund conducts an offering of new Common Shares and such offering constitutes a “distribution” under Regulation M, the fund and
certain of its affiliates may be subject to an applicable restricted period that could limit the timing of any repurchases by the fund.
The Declaration of Trust authorizes the issuance of an unlimited number of shares of beneficial interest with preference rights, including preferred
shares (“Preferred Shares”), having no par value per share or such other amount as the Board may establish, in one or more series, with rights as
determined by the Board, by action of the Board without the approval of the Common Shareholders. The Board has no current intention to issue
Preferred Shares.
Under the requirements of the 1940 Act, the fund must, immediately after the issuance of any Preferred Shares, have an “asset coverage” of at least
200%. Asset coverage means the ratio which the value of the total assets of the fund, less all liability and indebtedness not represented by senior
securities (as defined in the 1940 Act), bears to the aggregate amount of senior securities representing indebtedness of the fund, if any, plus the
aggregate liquidation preference of the Preferred Shares. If the fund seeks a rating of the Preferred Shares, asset coverage requirements, in addition to
those set forth in the 1940 Act, may be imposed. The liquidation value of the Preferred Shares is expected to equal their aggregate original purchase
price plus redemption premium, if any, together with any accrued and unpaid dividends thereon (on a cumulative basis), whether or not earned or
declared. The terms of the Preferred Shares, including their dividend rate, voting rights, liquidation preference and redemption provisions, will be
determined by the Board (subject to applicable law and the Declaration of Trust) if and when it authorizes the Preferred Shares. The fund may issue
Preferred Shares that provide for the periodic redetermination of the dividend rate at relatively short intervals through an auction or remarketing
procedure, although the terms of the Preferred Shares also may enable the fund to lengthen such intervals. At times, the dividend rate as redetermined
on the fund’s Preferred Shares may approach or exceed the fund’s return after expenses on the investment of proceeds from the Preferred Shares and
the fund’s leveraged capital structure would result in a lower rate of return to Common Shareholders than if the fund were not so structured.
In the event of any voluntary or involuntary liquidation, dissolution or winding up of the fund, the terms of any Preferred Shares may entitle the holders of
Preferred Shares to receive a preferential liquidating distribution (expected to equal the original purchase price per share plus redemption premium, if
any, together with accrued and unpaid dividends, whether or not earned or declared and on a cumulative basis) before any distribution of assets is made
to holders of Common Shares. After payment of the full amount of the liquidating distribution to which they are entitled, the holders of Preferred Shares
would not be entitled to any further participation in any distribution of assets by the fund.
Under the 1940 Act, if at any time dividends on the Preferred Shares are unpaid in an amount equal to two full years’ dividends thereon, the holders of
all outstanding Preferred Shares, voting as a class, will be allowed to elect a majority of the fund’s Trustees until all dividends in default have been paid
or declared and set apart for payment. In addition, if required by the Rating Agency rating the Preferred Shares or if the Board determines it to be in the
best interests of the Common Shareholders, issuance of the Preferred Shares may result in more restrictive provisions than required by the 1940 Act
being imposed. In this regard, holders of the Preferred Shares may be entitled to elect a majority of the Board in other circumstances, for example, if
one payment on the Preferred Shares is in arrears.
If the fund were to issue Preferred Shares, it is expected that the fund would seek a credit rating for the Preferred Shares from a Rating Agency. In that
case, as long as Preferred Shares are outstanding, the composition of its portfolio would reflect guidelines established by such Rating Agency.
Although, as of the date hereof, no such Rating Agency has established guidelines relating to any such Preferred Shares, based on previous guidelines
established by such Rating Agencies for the securities of other issuers, the fund anticipates that the guidelines with respect to the Preferred Shares
would establish a set of tests for portfolio composition and asset coverage that supplement (and in some cases are more restrictive than) the applicable
requirements under the 1940 Act. Although, at this time, no assurance can be given as to the nature or extent of the guidelines, which may be imposed
in connection with obtaining a rating of the Preferred Shares, the fund currently anticipates that such guidelines will include asset coverage
requirements, which are more restrictive than those under the 1940 Act, restrictions on certain portfolio investments and investment practices,
requirements that the fund maintain a portion of its total assets in short-term, high-quality, fixed-income securities and certain mandatory redemption
requirements relating to the Preferred Shares. No assurance can be given that the guidelines actually imposed with respect to the Preferred Shares by
such Rating Agency will be more or less restrictive than as described in this Prospectus.
Certain Provisions in the Declaration of Trust and By-Laws
Under Massachusetts law, shareholders, in certain circumstances, could be held personally liable for the obligations of the Fund. However, the
Declaration of Trust contains an express disclaimer of shareholder liability for debts or obligations of the Fund. The By-laws further provide for
indemnification out of the assets and property of the Fund for all loss and expense of any shareholder held personally liable for the obligations of the
Fund. In addition, at the request of the shareholder, the Fund will assume the defense of any claim against a shareholder for personal liability. Thus, the
risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which the Fund would be unable to meet its
obligations. The Fund believes that the likelihood of such circumstances is remote.
The Declaration of Trust provides that the Trustees may amend the Declaration of Trust without Common Shareholder approval to change the name of
the Fund, to make other changes as do not have a materially adverse effect on the rights or interests of shareholders, or if the Trustees deem it
necessary to conform the Declaration to any applicable law. The Declaration of Trust, however, prohibits amendments that impair the exemption from
personal liability of the shareholders, Trustees, officers, employees and agents of the Fund or permit assessments upon shareholders.
The Declaration of Trust and By-laws provide that the Trustees have the power, to the exclusion of shareholders, to make, alter or repeal any of the
By-laws, except for any By-law that requires a vote of the shareholders to be amended, adopted or repealed by the terms of the Declaration of Trust,
By-laws or applicable law. This provision of the Declaration of Trust cannot be amended or repealed except by the vote of such required number of
shares.
The Declaration of Trust also places certain limitations on the ability of a shareholder to sue the Fund or bring a derivative action on behalf of the Fund,
except with respect to claims arising under the U.S. federal securities laws. Such limitations include, but are not limited to: (a) the power of the Trustees,
in the exercise of their good faith business judgment, to dismiss or terminate any such action, suit, proceeding, dispute, claim or demand; (b) if a
shareholder brings a claim in a jurisdiction other than as specified in the Declaration of Trust, the shareholder may be required to reimburse all
expenses incurred by the Fund or any other person in effecting a change of venue; (c) shareholders are required to make a pre-suit demand upon the
Trustees to bring a derivative action, unless the demanding shareholder(s) make a specific showing that irreparable nonmonetary injury to the Fund that
the shareholder(s) could not reasonably have prevented would otherwise result; (d) the Trustees may, in their sole discretion, submit the question of
whether to proceed with a derivative action claim to a vote of shareholders of the Fund; and (e) any diminution in the value of a shareholder’s shares, or
any other claim arising out of or relating to an allegation regarding the actions, inaction, or omissions of or by the Trustees, the Fund’s officers, or the
Adviser is a legal claim belonging only to the Fund and not to the shareholders individually.
The Declaration of Trust also places limitations on the forum in which claims against or on behalf of the Fund may be heard. Claims against the Fund are
required to be brought in the United States District Court for the District of Massachusetts, or to the extent such court does not have jurisdiction then
such actions and/or claims shall be brought in the Superior Court of Suffolk County for the Commonwealth of Massachusetts.
The Declaration of Trust and By-laws include provisions that could have the effect of limiting the ability of other entities or persons to acquire control of
the Fund or to change the composition of its Board and could have the effect of depriving Common Shareholders of an opportunity to sell their Common
Shares at a premium over prevailing market prices by discouraging a third party from seeking to obtain control of the Fund. These provisions may have
the effect of discouraging attempts to acquire control of the Fund, which attempts could have the effect of increasing the expenses of the Fund and
interfering with the normal operation of the Fund. They provide, however, the advantage of potentially requiring persons seeking control of the Fund to
negotiate with its management regarding the price to be paid and facilitating the continuity of the Fund’s investment objectives and policies. The Board
has considered and approved the following anti-takeover provisions. The following is only a summary and is qualified in its entirety by reference to the
Declaration of Trust and By-laws on file with the SEC.
The number of Trustees is currently twelve, but by action of a majority of the Trustees, the Board may from time to time be increased or decreased. The
Board is divided into three classes of Trustees serving staggered three-year term, with the terms of one class expiring at each annual meeting of
shareholders or special meeting in lieu thereof. This provision could delay for up to two years the replacement of a majority of the Board. If the Fund
issues Preferred Shares, the Fund may establish a separate class for the Trustees elected by the holders of the Preferred Shares. Subject to applicable
provisions of the 1940 Act, vacancies on the Board may be filled by a majority action of the remaining Trustees. Such provisions may work to delay a
change in the majority of the Board.
Generally, the Declaration of Trust requires a vote by holders of at least two-thirds of the Common Shares and Preferred Shares, if any, voting separately,
except as described below and in the Declaration of Trust, to authorize: (i) a conversion of the Fund from a closed-end to an open-end investment
company; (ii) a merger or consolidation of the Fund with any other corporation, association, trust or other organization, including a series or class of
such other organization; (iii) a sale, lease or exchange of all or substantially all of the Fund’s assets; or (iv) a removal of a Trustee. With respect to (i)
through (iii), if such transaction is recommended by the Trustees, then the affirmative vote of the majority of the outstanding voting securities is
required; provided that when only a particular class is affected (or, in the case of removing a Trustee, when the Trustee has been elected by only one
class), only the required vote of the particular class will be required. However, with respect to (iv) above, if there are Preferred Shares outstanding, all
shares vote as a single class.
Additionally, the Fund’s By-laws contain certain provisions that may tend to make a change of control of the Fund more difficult. For example, the By-laws
(i) require a shareholder to give written advance notice and other information to the Fund of the shareholder’s nominees for Trustees and proposals for
other business to be considered at annual shareholders’ meetings (or special meetings in lieu of annual shareholders’ meetings); (ii) require any such
notice by a shareholder be accompanied by certain information as provided in the By-laws; (iii) provide that Trustees may be nominated by shareholders
only at an annual meeting of the Fund or special meeting in lieu of an annual meeting; (iv) prohibit shareholders from acting by written consent or
requiring that the Fund call a special meeting of shareholders, except in limited circumstances set forth in the By-laws and Declaration of Trust, and
from proposing other business at a special meeting of shareholders; (v) reserve to the Board the exclusive power to adopt, alter, or repeal any provision
of the By-laws or to make new By-laws, except where the Declaration of Trust, By-laws or applicable law would additionally require a shareholder vote to
effect such adoption, alteration or repeal; and (vi) provide that Trustees and officers are entitled to indemnification and that the Fund may pay or
reimburse expenses of Trustees and officers. The foregoing description of the By-laws is qualified in its entirety by the full text of the Amended and
Restated By-laws effective as of September 27, 2013, last amended March 10, 2016.
Potential Conversion to Open-End Fund
The Fund may be converted to an open-end management investment company at any time if approved by each of the following: (i) a majority of the
Trustees then in office, (ii) the holders of not less than 75% of the Fund’s outstanding shares entitled to vote thereon and (iii) by such vote or votes of the
holders of any class or classes or series of shares as may be required by the 1940 Act. In the event of conversion, the Common Shares would cease to
be listed on the NYSE or other national securities exchange or market system. The Board believes, however, that the closed-end structure is desirable,
given the Fund’s investment objective and policies. Investors should assume, therefore, that it is unlikely that the Board would vote to convert the Fund
to an open-end management investment company. Shareholders of an open-end management investment company may require the company to redeem
their shares at any time (except in certain circumstances as authorized by or under the 1940 Act) at their NAV, less such redemption charge, if any, as
might be in effect at the time of a redemption. The Fund would expect to pay all such redemption requests in cash, but intends to reserve the right to pay
redemption requests in a combination of cash or securities. If such partial payment in securities were made, investors may incur brokerage costs in
converting such securities to cash. If the Fund were converted to an open-end fund, it is likely that new Common Shares would be sold at NAV plus a
sales load.
The Fund makes available to its shareholders unaudited semi-annual and audited annual reports, including a list of investments held.
Independent Registered Public Accounting Firm
PricewaterhouseCoopers LLP, who has offices at 101 Seaport Boulevard, Suite 500, Boston, Massachusetts 02210, is the independent registered
public accounting firm for the Fund and audits the Fund’s
financial statements.
Legal and Regulatory Matters
There are no legal proceedings to which the Fund, the Advisor, or any of its affiliates is a party that are likely to have a material adverse effect on the
Fund, or the ability of the Advisor to perform its contract with the Fund.
Incorporation by Reference
As noted above, this Prospectus is part of a registration statement filed with the SEC. Pursuant to the final rule and form amendments adopted by the
SEC on April 8, 2020 to implement certain provisions of the Economic Growth, Regulatory Relief, and Consumer Protection Act, including General
Instruction A.2 of Form N-2, the fund is permitted to “incorporate by reference” the information filed with the SEC, which means that the fund can
disclose important information to you by referring you to those documents. The information incorporated by reference is considered to be part of this
Prospectus, and later information that the fund files with the SEC will automatically update and supersede this information.
The documents listed below, and any reports and other documents subsequently filed with the SEC pursuant to Rule 30(b)(2) under the 1940 Act and
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the termination of the offering will be incorporated by reference into this Prospectus
and deemed to be part of this Prospectus from the date of the filing of such reports and documents:
You may obtain copies of any information incorporated by reference into this Prospectus, at no charge, by calling 800-225-6020 (toll-free), from the
fund’s website https://www.jhinvestments.com/investments/closed-end-fund/international-equity-funds/tax-advantaged-global-shareholder-yield-fund-ce-hty,
or from the SEC’s website at sec.gov. The fund’s periodic reports filed pursuant to Section 30(b)(2) of
the 1940 Act and Sections 13 and 15(d) of the Exchange Act, as well as this Prospectus and the Statement of Additional Information, are available on
the fund’s website https://www.jhinvestments.com/investments/closed-end-fund/international-equity-funds/tax-advantaged-global-shareholder-yield-fund-ce-hty.
The SEC maintains an internet site that contains reports, proxy and information statements, and other
information regarding issuers that file electronically with the SEC, and you also may obtain a copy of any information regarding the fund filed with the
SEC from the SEC’s website (sec.gov).
The Fund has entered into contractual arrangements with various parties that provide services to the Fund, including, among others, the Advisor,
subadvisor, Custodian, and transfer agent, as described above and in the SAI. Fund shareholders are not parties to, or intended or “third-party”
beneficiaries of, any of these contractual arrangements. These contractual arrangements are not intended to, nor do they, create in any individual
shareholder or group of shareholders any right, either directly or on behalf of the fund, to either: (a) enforce such contracts against the service
providers; or (b) seek any remedy under such contracts against the service providers.
This prospectus provides information concerning the Fund that you should consider in determining whether to purchase shares of the Fund. Each of this
prospectus, the SAI, or any contract that is an exhibit to the Fund’s registration statement, is not intended to, nor does it, give rise to an agreement or
contract between the Fund and any investor. Each such document also does not give rise to any contract or create rights in any individual shareholder,
group of shareholders, or other person. The foregoing disclosure should not be read to suggest any waiver of any rights conferred by federal or state
securities laws.
This Prospectus and the SAI do not contain all of the information set forth in the Registration Statement that the Fund has filed with the SEC (file No.
333-276048). The complete Registration Statement may be obtained from the SEC at www.sec.gov. See the cover page of this Prospectus for
information about how to obtain a paper copy of the Registration Statement or SAI without charge.
Table of Contents of the Statement of Additional Information
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Additional Investment Policies and Risks | |
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Those Responsible for Management | |
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Investment Advisory and Other Services | |
Determination of Net Asset Value | |
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Additional Information Concerning Taxes | |
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Custodian and Transfer Agent | |
Independent Registered Public Accounting Firm | |
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Incorporation by Reference | |
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Appendix A: Description of Bond Ratings | |
Appendix B: Proxy Voting Policies and Procedures | |
The Fund’s Privacy Policy
The Fund is committed to maintaining the privacy of its shareholders and to safeguarding their non-public personal information. The following
information is provided to help you understand what personal information the Fund collects, how the Fund protects that information and why, in certain
cases, the Fund may share information with select other parties.
Generally, the Fund does not receive any non-public personal information relating to its shareholders, although certain non-public personal information
of its shareholders may become available to the Fund. The Fund does not disclose any non-public personal information about its shareholders or former
shareholders to anyone, except as permitted by law (which includes disclosure to employees necessary to service your account). The Fund may share
information with unaffiliated third parties that perform various required services, such as transfer agents, custodians and broker/dealers.
The Fund restricts access to non-public personal information about its shareholders to employees of the Fund’s investment advisor and its affiliates with
a legitimate business need for the information. The Fund maintains physical, electronic and procedural safeguards designed to protect the non-public
personal information of its shareholders.
John Hancock Tax-Advantaged Global Shareholder Yield Fund
Statement of Additional Information
John Hancock Tax-Advantaged Global Shareholder Yield Fund
200 Berkeley Street
Boston, Massachusetts 02116
800-225-6020
This Statement of Additional Information (“SAI”) is not a prospectus and is authorized for distribution to prospective investors only if preceded or
accompanied by the prospectus of John Hancock Tax-Advantaged Global Shareholder Yield Fund (the “fund”) dated March 1, 2024, (the “Prospectus”)
and any related supplement thereto (“Prospectus Supplements”), which are incorporated herein by reference. This SAI should be read in conjunction
with such Prospectus and any related Prospectus Supplements, copies of which may be obtained without charge by contacting your financial
intermediary or calling the fund at 800-225-6020.
Capitalized terms used in this SAI and not otherwise defined have the meanings given them in the fund’s Prospectus and any related Prospectus
Supplements.
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.
The fund is a diversified, closed-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940
Act”). The fund was organized on April 23, 2007 as a Massachusetts business trust pursuant to an Agreement and Declaration of Trust (the “Declaration
of Trust”).
John Hancock Investment Management LLC (the “Advisor” or “JHIM”) is the fund’s investment advisor and is registered with the Securities and Exchange
Commission (the “SEC”) as an investment advisor under the Investment Advisers Act of 1940, as amended (the “Advisers Act”). The Advisor is
responsible for overseeing the management of the fund, including its day-to-day business operations and monitoring the subadvisor. The Advisor has
been managing closed-end funds since 1971.
Founded in 1968, the Advisor is an indirect principally owned subsidiary of John Hancock Life Insurance Company (U.S.A.), a subsidiary of Manulife
Financial Corporation (“Manulife Financial” or the “Company”). John Hancock Life Insurance Company (U.S.A.) and its subsidiaries (“John Hancock”)
today offer a broad range of financial products, including life insurance, annuities, investments, 401(k) plans, college savings plans, and certain forms
of business insurance. Additional information about John Hancock may be found on the Internet at johnhancock.com.
The Advisor’s parent company has been helping individuals and institutions work toward their financial goals since 1862. The Advisor offers investment
solutions managed by institutional money managers, taking a disciplined team approach to portfolio management and research, leveraging the
expertise of seasoned investment professionals.
Manulife Financial is a leading Canada-based financial services group with principal operations in Asia, Canada and the United States. Operating as
Manulife in Canada and Asia, and primarily as John Hancock in the United States, the Manulife Financial group of companies offers clients a diverse
range of financial protection products and wealth management services to millions of clients. It also provides asset management services to
institutional customers through its extensive network of employees, agents, and distribution partners.
The fund’s subadvisor is Epoch Investment Partners, Inc. (“Epoch”), (the “subadvisor”). Epoch is responsible for the day-to-day management of the fund’s
portfolio investments. Epoch, founded in 2004 is a wholly owned subsidiary of The Toronto-Dominion Bank.
Additional Investment Policies and Risks
The principal strategies and risks of investing in the fund are described in the Prospectus. Unless otherwise stated in the Prospectus or this SAI, the
investment objective and policies of the fund may be changed without shareholder approval. The fund may invest in the instruments below, in
accordance with its principal and non-principal investment strategies and such instruments and investment policies apply to the fund, but only if and to
the extent that such policies are consistent with and permitted by the fund’s investment objective and policies. The fund may also have indirect exposure
to the instruments described below through derivative contracts.
Additional Regulatory Limitations on the Use of Derivatives
The Commodity Futures Trading Commission (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 Commodity Exchange Act (“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 commodity pool operator (“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 fund.
Although the Advisor is a registered commodity pool operator (“CPO”) under the CEA 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 fund. To remain eligible for this exemption, the 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 the 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.
As described in the Prospectus, the fund invests primarily in common stocks.
The fund may invest in preferred securities of both U.S. and non-U.S. issuers. Under normal market conditions, the fund expects, with respect to that
portion of its total assets invested in preferred securities, to invest only in preferred securities of investment grade quality as determined by S&P, Fitch
or Moody’s or, if unrated, determined to be of comparable quality by Epoch, the subadvisor to the fund. The foregoing credit quality policies apply only at
the time a security is purchased, and the fund is not required to dispose of a security in the event of a downgrade of an assessment of credit quality or
the withdrawal of a rating. Preferred securities involve credit risk, which is the risk that a preferred security will decline in price, or fail to pay dividends
when expected, because the issuer experiences a decline in its financial status. In addition to credit risk, investment in preferred securities involves
certain other risks as more fully described in the Prospectus.
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 the 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 fund. 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.
The fund also may participate in repurchase agreement transactions utilizing the settlement services of clearing firms that meet the subadvisor's
creditworthiness requirements.
The Advisor and the subadvisor 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.
The 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.
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 be required to cover its repurchase agreement
transactions by maintaining in a segregated custodial account cash, Treasury bills, other U.S. government securities, or other liquid assets having an
aggregate value at least equal to the amount of such commitment to repurchase including accrued interest, until payment is made.
A fund may effect simultaneous purchase and sale transactions that are known as “sale-buybacks.” A sale-buyback is similar to a reverse repurchase
agreement, except that in a sale-buyback, the counterparty that purchases the security is entitled to receive any principal or interest payments made on
the underlying security pending settlement of the fund’s repurchase of the underlying security. A fund’s obligations under a sale-buyback typically would
be offset by liquid assets equal in value to the amount of the fund’s forward commitment to repurchase the subject security.
The fund may invest in cash equivalents to invest daily cash balances or for temporary defensive purposes. Cash equivalents are highly liquid,
short-term securities such as commercial paper, time deposits, certificates of deposit, short-term notes and short-term U.S. Government obligations
and may include Cash Management Portfolio, an affiliated money market fund that invests in such short-term securities.
The fund may use a variety of derivative instruments (including both long and short positions) for hedging purposes, to adjust portfolio characteristics or
more generally for purposes of attempting to increase the fund’s investment return, including, for example, by buying and selling call and put options,
buying and selling futures contracts and options on futures contracts and entering into forward contracts and swap agreements (including total return
swaps) with respect to securities, indices and currencies. There can be no assurance that the fund will enter into any such transaction at any particular
time or under any specific circumstances.
The fund may purchase and sell derivative instruments such as exchange-listed and over-the-counter put and call options on securities, financial
futures, equity, fixed-income, interest rate indices and other financial instruments, purchase and sell financial futures contracts and options thereon
and enter into various interest rate transactions such as swaps, caps, floors or collars. The fund also may enter into derivative instruments or
transactions that combine features of these instruments. Derivatives have risks, including the imperfect correlation between the value of such
instruments and the underlying assets, the possible default of the other party to the transaction and illiquidity of the derivative instruments. The ability
to use derivatives successfully depends, in part, on the Advisor’s or the subadvisor’s ability to predict market movements correctly, which cannot be
assured. Thus, the use of derivatives may result in losses greater than if they had not been used, may require the fund to sell or purchase portfolio
securities at inopportune times or for prices other than the values the fund has placed on them, may limit the amount of appreciation the fund can
realize on an investment or may cause the fund to hold a security that it might otherwise sell. Additionally, amounts paid by the fund as premiums and
cash or other assets held in margin accounts with respect to derivatives may not otherwise be available to the fund for investment purposes.
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 the 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.
Exchange-Traded Funds Risk
The fund may invest in shares of exchange-traded funds (collectively, “ETFs”), which are designed to provide investment results corresponding to an
index. These indexes may be either broad-based, sector or international and may include Standard & Poor’s Depositary Receipts (“SPDRs”), DIAMONDS,
NASDAQ-100 Index Tracking Stock (also referred to as “NASDAQ-100 Shares”) and iShares exchange-traded funds (“iShares”), such as iShares Russell
2000 Growth Index fund and HOLDRS (Holding Company Depositary Receipts). ETFs usually are units of beneficial interest in an investment trust or
represent undivided ownership interests in a portfolio of securities, in each case with respect to a portfolio of all or substantially all of the component
securities of, and in substantially the same weighting as, the relevant benchmark index. The benchmark indices of SPDRs, DIAMONDS and
NASDAQ-100 Shares are the Standard & Poor’s 500 Stock Index, the Dow Jones Industrial Average and the NASDAQ-100 Index, respectively. The
benchmark index for iShares varies, generally corresponding to the name of the particular iShares fund. ETFs are designed to provide investment
results that generally correspond to the price and yield performance of the component securities (or commodities) of the benchmark index. ETFs are
listed on an exchange and trade in the secondary market on a per-share basis.
Investments in ETFs generally are subject to limits in the 1940 Act on investments in other investment companies. The values of ETFs are subject to
change as the values of their respective component securities (or commodities) fluctuate according to market volatility. Investments in ETFs that are
designed to correspond to an equity index involve certain inherent risks generally associated with investments in a broadly based portfolio of common
stocks, including the risk that the general level of stock prices may decline, thereby adversely affecting the value of ETFs invested in by the fund.
Moreover, the fund’s investments in ETFs may not exactly match the performance of a direct investment in the respective indices to which they are
intended to correspond due to the temporary unavailability of certain index securities in the secondary market or other extraordinary circumstances,
such as discrepancies with respect to the weighting of securities.
Typically, ETF programs bear their own operational expenses, which are deducted from the dividends paid to investors. To the extent that the fund
invests in ETFs, the fund must bear these expenses in addition to the expenses of its own operation.
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.
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, the 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 the 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 the fund. For
example, in a denial of service, fund shareholders could lose access to their electronic accounts indefinitely, and employees of the Advisor, the
subadvisor, or the funds’ other service providers may not be able to access electronic systems to perform critical duties for the fund, such as trading,
NAV calculation, shareholder accounting, or fulfillment of fund share purchases and redemptions. Cybersecurity incidents could cause the fund, the
Advisor, the 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 the fund invests, thereby causing the fund’s investments to lose value.
Cyber-events have the potential to affect materially the fund and the advisor’s relationships with accounts, shareholders, clients, customers,
employees, products, and service providers. The fund has 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 fund is 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, the 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, the 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 fund invests.
In addition, other disruptive events, including (but not limited to) natural disasters and public health crises, 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.
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.
Hong Kong Stock Connect Program and Bond Connect Program Risk
The 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. The 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 the 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 the 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 the fund will be permitted
to sell China A-Shares regardless of the quota balance). These limitations may restrict the fund from investing in China A-Shares on a timely basis, which
could affect the 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 the fund intends to sell China A-shares it holds, it must transfer those securities to the
accounts of the fund’s participant broker before the market opens. As a result, the 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 the 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 the 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 the 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 the 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 the fund.
Stock Connect and Bond Connect regulations provide that investors, such as the 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, the fund is subject to the risks of default or errors on the part of such third parties.
While the fund’s ownership of China A-Shares will be reflected on the books of the custodian’s records, the fund will only have beneficial rights in such
A-Shares. The precise nature and rights of the 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 the 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 the 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 the 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 the 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 the fund to various risks, including the risk that the 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, the fund’s ability to invest in Chinese bonds will be adversely affected and limited. In such event, the fund’s ability
to achieve its investment objective will be negatively affected and, after exhausting other trading alternatives, the fund may suffer substantial losses as
a result.
Illiquid and Restricted Securities Risk.
Restricted securities are securities with restrictions on public resale, such as securities offered in
accordance with an exemption under Rule 144A under the Securities Act of 1933 (the “1933 Act”), or commercial paper issued under Section 4(a)(2)
of the 1933 Act. Restricted securities are often required to be sold in private sales to institutional buyers, markets for restricted securities may or may
not be well developed, and restricted securities can be illiquid. The extent (if at all) to which a security may be sold or a derivative position closed without
negatively impacting its market value may be impaired by reduced market activity or participation, legal restrictions or other economic and market
impediments. funds with principal investment strategies that involve investments in securities of companies with smaller market capitalizations, foreign
securities, derivatives, or securities with substantial market and/or credit risk tend to have the greatest exposure to liquidity risk. Exposure to liquidity
risk may be heightened for funds that invest in securities of emerging markets and related derivatives that are not widely traded, and that may be
subject to purchase and sale restrictions.
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,”
., 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.
LIBOR Discontinuation Risk
Certain debt securities, derivatives and other financial instruments have traditionally utilized LIBOR as the reference or benchmark rate for interest rate
calculations. However, following allegations of manipulation and concerns regarding liquidity, the U.K. Financial Conduct Authority (“UK FCA”)
announced that LIBOR would be discontinued on June 30, 2023. The UK FCA elected to require the ICE Benchmark Administration Limited, the
administrator of LIBOR, to continue publishing a subset of British pound sterling and U.S. dollar LIBOR settings on a “synthetic” basis. The synthetic
publication of the three-month sterling LIBOR will continue until March 31, 2024, and the publication of the one-, three- and six-month U.S. dollar LIBOR
will continue until September 30, 2024.
Although the transition process away from LIBOR has become increasingly well-defined in advance of the discontinuation dates, the impact on certain
debt securities, derivatives and other financial instruments remains uncertain. Market participants have adopted alternative rates such as Secured
Overnight Financing Rate (“SOFR”) or otherwise amended financial instruments referencing LIBOR to include fallback provisions and other measures
that contemplated 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. 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.
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.
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; bank
failures; 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 the fund.
Political turmoil within the United States and abroad may also impact the 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 the 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,” the UK ceased to be a member of the EU, and the UK
and EU entered into a Trade and Cooperation Agreement. 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.
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. While many countries have lifted some or all restrictions related to the coronavirus (COVID-19) and the United States ended the public health
emergency and national emergency declarations relating to the coronavirus (COVID-19) pandemic on May 11, 2023, the continued impact of
coronavirus (COVID-19) and related variants is uncertain. 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.
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.
Multinational Companies Risk
To the extent that the 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.
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.
Pooled Investment Vehicles Risk
The fund reserves the right to invest up to 10% of its total assets, calculated at the time of purchase, in the securities of pooled investment vehicles
(e.g., investment companies, exchange-traded funds, or private funds), including other investment companies unaffiliated with the Advisor. The fund will
indirectly bear its proportionate share of any management fees paid by pooled investment vehicles in which it invests in addition to the advisory fee paid
by the fund. Please refer to “Cash Equivalents” for additional information about investment in other investment companies. The 10% limitation does not
apply to the fund’s investment in money market funds and certain other pooled investment vehicles (e.g., investments made in a collateral trust or
another vehicle, as permitted by SEC exemptive order or regulatory guidance). If the fund invests in Cash Management Portfolio, an affiliated money
market fund, the management fee paid on such investment will be credited against the fund’s management fee.
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, on October 28, 2020, the SEC adopted new regulations governing the use of derivatives by registered investment companies (“Rule 18f-4” or
the “Derivatives Rule”). The funds were required to implement and comply with Rule18f-4 by August 19, 2022. Rule 18f-4 eliminates the asset
segregation framework formerly used by funds to comply with Section 18 of the 1940 Act, as amended.
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.
Short-Term Trading and Portfolio Turnover
Short-term trading means the purchase and subsequent sale of a security after it has been held for a relatively brief period of time. The 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 expenses.
The portfolio turnover rate for the fund for the fiscal years ended October 31, 2023 and October 31, 2022 was 308% and 311%, respectively.
As described in the Prospectus, the fund may lend a portion of its portfolio securities to broker-dealers or other institutional borrowers. Loans are made
only to organizations whose credit quality or claims paying ability is considered by the Advisor or Epoch to be at least investment grade. All securities
loans are collateralized on a continuous basis by cash, cash equivalents (such as money market instruments) or other liquid securities held by the
custodian and maintained in an amount at least equal to the market value of the securities loaned. The fund may receive loan fees in connection with
loans that are collateralized by securities or on loans of securities for which there is special demand. The fund may also seek to earn income on
securities loans by reinvesting cash collateral in securities consistent with its investment objective and policies, seeking to invest at rates that are
higher than the “rebate” rate that it normally will pay to the borrower with respect to such cash collateral. Any such reinvestment will be subject to the
investment policies, restrictions and risk considerations described in the Prospectus and in this SAI. Compensation received by the fund in connection
with securities lending activities will not constitute tax-advantaged qualified dividend income.
Securities loans may result in delays in recovering, or a failure of the borrower to return, the loaned securities. The defaulting borrower ordinarily would
be liable to the fund for any losses resulting from such delays or failures, and the collateral provided in connection with the loan normally would also be
available for that purpose. Securities loans normally may be terminated by either the fund or the borrower at any time. Upon termination and the return
of the loaned securities, the fund would be required to return the related cash or securities collateral to the borrower and it may be required to liquidate
longer term portfolio securities in order to do so. To the extent that such securities have decreased in value, this may result in the fund realizing a loss at
a time when it would not otherwise do so. The fund also may incur losses if it is unable to reinvest cash collateral at rates higher than applicable rebate
rates paid to borrowers and related administrative costs. These risks are substantially the same as those incurred through investment leverage and will
be subject to the investment policies, restrictions and risk considerations described in the Prospectus and in this SAI.
The fund will receive amounts equivalent to any interest or other distributions paid on securities while they are on loan, and the fund will not be entitled
to exercise voting or other beneficial rights on loaned securities. The fund will exercise its right to terminate loans and thereby regain these rights
whenever the Advisor considers it to be in the fund’s interest to do so, taking into account the related loss of reinvestment income and other factors.
The fund may sell a security short if it owns at least an equal amount of the security sold short or another security convertible or exchangeable for an
equal amount of the security sold short without payment of further compensation (a short sale against-the-box).
Purchasing securities to close out the short position can itself cause the price of the securities to rise further, thereby exacerbating the loss.
Short-selling exposes the fund to unlimited risk with respect to that security due to the lack of an upper limit on the price to which an instrument can
rise. Although the fund reserves the right to utilize short sales, Epoch is under no obligation to utilize short sales at all.
Temporary Investments Risk
There may be times when, in the Advisor’s judgment, conditions in the securities market would make pursuit of the fund’s investment strategy
inconsistent with achievement of the fund’s investment objectives. At such times, the Advisor may employ alternative strategies primarily to seek to
reduce fluctuations in the value of the fund’s assets. In implementing these temporary defensive strategies, depending on the circumstances, the fund
may invest part or all of its total assets in fixed-income securities with remaining maturities of less than one year, cash or cash equivalents. Cash
equivalents are highly liquid, short-term securities such as commercial paper, time deposits, certificates of deposit, short-term notes and short-term
U.S. government obligations.
The investment policies and strategies of the fund described in this SAI and the Prospectus, except for the investment objective of the fund and the nine
investment restrictions designated as fundamental policies under this caption, are not fundamental and may be changed by the Board of Trustees of the
fund (the “Board”) without shareholder approval.
Fundamental Investment Restrictions
As referred to above, the following nine investment restrictions of the fund are designated as fundamental policies and as such cannot be changed
without the approval of the holders of a majority of the fund’s outstanding voting securities, which as used in this SAI means the lesser of (a) 67% of the
shares of the fund present or represented by proxy at a meeting if the holders of more than 50% of the outstanding shares are present or represented at
the meeting or (b) more than 50% of outstanding shares of the fund. As a matter of fundamental policy, the fund may not:
Borrow money, except as permitted by the Investment Company Act of 1940, as amended (the “1940 Act”). The 1940 Act currently requires that
any indebtedness incurred by a closed-end investment company have an asset coverage of at least 300% at the time of borrowing;
Issue senior securities, as defined in the 1940 Act, other than (i) preferred shares which immediately after issuance will have asset coverage of at
least 200%, (ii) indebtedness which immediately after issuance will have asset coverage of at least 300%, or (iii) the borrowings permitted by
investment restriction (1) above. The 1940 Act currently defines “senior security” as any bond, debenture, note or similar obligation or instrument
constituting a security and evidencing indebtedness and any stock of a class having priority over any other class as to distribution of assets or
payment of dividends. Debt and equity securities issued by a closed-end investment company meeting the foregoing asset coverage provisions are
excluded from the general 1940 Act prohibition on the issuance of senior securities;
Purchase securities on margin (but the fund may obtain such short-term credits as may be necessary for the clearance of purchases and sales of
securities). The purchase of investment assets with the proceeds of a permitted borrowing or securities offering will not be deemed to be the
purchase of securities on margin;
Underwrite securities issued by other persons, except insofar as it may technically be deemed to be an underwriter under the Securities Act of
1933, as amended, in selling or disposing of a portfolio investment;
Make loans to other persons, except by (a) the acquisition of loans, loan interests, debt securities and other obligations in which the fund is
authorized to invest in accordance with its investment objective and policies, (b) entering into repurchase agreements and (c) lending its portfolio
securities;
Purchase or sell real estate, although it may purchase and sell securities which are secured by interests in real estate and securities of issuers
which invest or deal in real estate. The fund reserves the freedom of action to hold and to sell real estate acquired as a result of the ownership of
securities;
Purchase or sell physical commodities or contracts for the purchase or sale of physical commodities. Physical commodities do not include futures
contracts with respect to securities, securities indices, currency or other financial instruments;
With respect to 75% of its total assets, invest more than 5% of its total assets in the securities of a single issuer or purchase more than 10% of the
outstanding voting securities of a single issuer, except obligations issued or guaranteed by the U.S. government, its agencies or instrumentalities
and except securities of other investment companies; and
Invest 25% or more of its total assets in any single industry or group of industries (other than securities issued or guaranteed by the
U.S. government or its agencies or instrumentalities).
In regard to restriction (1), the fund may borrow money as a temporary measure for extraordinary or emergency purposes, including the payment of
dividends and the settlement of securities transactions which otherwise might require untimely dispositions of fund securities. The 1940 Act currently
requires that the fund have 300% asset coverage at the time of borrowing with respect to all borrowings other than temporary borrowings.
In regard to restriction (5)(c), the value of the securities loaned by the fund may not exceed 33 1/3% of its total assets.
In regard to restriction (8), when 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.
For purposes of construing restriction (9), securities of the U.S. Government, its agencies, or instrumentalities are not considered to represent
industries. Municipal obligations backed by the credit of a governmental entity also are not considered to represent industries.
Whenever an investment policy or investment restriction set forth in the Prospectus or this SAI states a maximum percentage of assets that may be
invested in any security or other asset or describes a policy regarding quality standards, such percentage limitation or standard shall be determined
immediately after and as a result of the fund’s acquisition of such security or asset. Accordingly, any later increase or decrease resulting from a change
in values, assets or other circumstances or any subsequent rating change made by a rating agency (or as determined by the Subadvisor if the security is
not rated by a rating agency) will not compel the fund to dispose of such security or other asset. Notwithstanding the foregoing, the fund must always be
in compliance with the borrowing policies set forth above.
Non-fundamental Investment Restrictions
The fund has adopted the following non-fundamental investment policy, which may be changed by the Board without approval of the fund’s shareholders.
As a matter of non-fundamental policy, the fund may not make short sales of securities or maintain a short position, unless at all times when a short
position is open the fund either owns an equal amount of such securities or owns securities convertible into or exchangeable, without payment of any
further consideration, for securities of the same issue as, and equal in amount to, the securities sold short.
Upon the Board’s approval, the fund may invest more than 10% of its total assets in one or more other management investment companies (or may
invest in affiliated investment companies) to the extent permitted by the 1940 Act and rules thereunder.
The fund’s annual rate of portfolio turnover 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 fund securities during the fiscal year by the monthly average of the value of the fund’s securities. (Excluded from the
computation are all securities, including options, with maturities at the time of acquisition of one year or less.) The portfolio turnover rate for the fund
for the fiscal years ended October 31, 2023 and October 31, 2022 was 308% and 311%, respectively.
Those Responsible for Management
The business of the fund is managed by the Board, including certain Trustees who are not “interested persons” (as defined in the 1940 Act) of the fund
(the “Independent Trustees”). The Trustees elect officers who are responsible for the day-to-day operations of the fund and who execute policies
formulated by the Trustees. Several of the Trustees and officers of the fund also are officers or directors of the Advisor, or officers or directors of its
affiliates. Each Trustee oversees the fund 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 fund, including their principal occupations which, unless specific
dates are shown, are of at least five years’ duration. In addition, the table includes 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 fund (each a “Non-Independent Trustee”) and the Independent Trustees. As of October 31, 2023, the John Hancock
Fund Complex consisted of 179 funds (including separate series of series mutual funds). The address of each Trustee and officer of the fund is 200
Berkeley Street, Boston, Massachusetts 02116.
The Board is divided into three staggered term classes, with the term of one class expiring each year, and no term continuing for longer than three years
after the applicable election. Should a Trustee in a class wish to serve an additional term, he or she must stand for re-election. Classifying the Trustees in
this manner may prevent replacement of a majority of the Trustees for a period of up to two years. The Board consists of twelve members. Each of the
three staggered term classes is composed of two, four and six Trustees.
| | Principal Occupation(s) and Other Directorships During the Past 5 Years | |
| | |
| | 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 (2005-2023, including prior positions); Director and Chairman, John Hancock Variable Trust Advisers LLC (2006-2023, including prior positions); Director and Chairman, John Hancock Investment Management Distributors LLC (2004-2023, 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 | |
| | Global Head, Manulife Wealth and Asset Management (since 2017); General Manager, Manulife, Individual Wealth Management and Insurance (2013–2017); President, Manulife Investments Trustee of various trusts within the John Hancock Fund Complex (since | |
| | Principal Occupation(s) and Other Directorships During the Past 5 Years | |
| | |
| | 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). | |
| | 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 Trustee of various trusts within the John Hancock Fund Complex | |
| | Principal Occupation(s) and Other Directorships During the Past 5 Years | |
| | |
| | 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 (2021–2023). Trustee of various trusts within the John Hancock Fund Complex | |
| | 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 | |
| | 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); Advisory Board Member of the Block Center for Technology and Trustee of various trusts within the John Hancock Fund Complex | |
| | President, Cambridge College, Cambridge, Massachusetts (2011–2023); 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 | |
| | Trustee of Berklee College of Music (since 2022); 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. | |
| | Principal Occupation(s) and Other Directorships During the Past 5 Years | |
| | |
| | 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. | |
| | 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 | |
| | 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 Trustee of various trusts within the John Hancock Fund Complex | |
Ms. Ellison, Ms. Harrison, and Ms. Rathke serve as Trustees for a term expiring in 2024; Mr. Arnott, Mr. Garfield, Ms. Jackson, and Mr. Pruchansky serve as Trustees for
a term expiring in 2025; Mr. Boyle, Dr. Cunningham, Ms. Fey, Mr. Lorentz, Dr. McClellan and Mr. Russo serve as Trustees for a term expiring in 2026.
The Trustee is a Non-Independent Trustee due to his position with the Advisor and certain of its affiliates.
Mr. Boyle served as Trustee at various time periods prior to 2015.
Correspondence intended for any of the Trustees may be sent to the attention of the individual Trustee or to the Board c/o the Secretary of the fund at
200 Berkeley Street, Boston, Massachusetts 02116-2805. All communications addressed to the Board or individual Trustee will be logged and sent to
the Board or individual Trustee. The Secretary may determine not to forward any letter to Trustees that does not relate to the business of the fund.
Principal Officers who are not Trustees
The following table presents information regarding the current principal officers of the fund 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.
| | Principal Occupation(s) During the Past 5 Years |
| | Head of Wealth & Asset Management, U.S. and Europe, for John Hancock and Manulife (since 2023); Director and Chairman, John Hancock Investment Management LLC (since 2023); Director and Chairman, John Hancock Variable Trust Advisers LLC (since 2023); Director and Chairman, John Hancock Investment Management Distributors LLC (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). |
| | 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 |
| | 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 | Secretary and Chief Legal | 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 |
| | 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). |
Each officer holds office for an indefinite term until his or her successor is duly elected and qualified or until he/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 the 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 Trust 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 fund 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.
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.
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.
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.
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.
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.
Ms. Jackson has leadership, governance, management, and operational oversight experience as the lead director of a large
bank, former 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.
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 Trust.
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.
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.
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.
Through his positions as Global Head of Retail for Manulife; 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.
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
The Trust is organized as a Massachusetts business trust. Under the 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 Trust. The Board met 5 times during the fiscal year ended October 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 herein 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 (or of their parent company, Manulife Financial Corporation), and of other affiliates of the Advisor,
provide the Board with the perspective of the Advisor in managing and sponsoring all of the 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.
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.
The Board has a standing Audit Committee composed solely of Independent Trustees (Messrs. Cunningham and McClellan and Ms.
Rathke). Ms. Rathke serves as Chairperson of this Committee. This Committee reviews the internal and external accounting and auditing procedures of
the Trust and, among other things, considers the selection of an independent registered public accounting firm for the 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 4
times during the fiscal year ended October 31, 2023.
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 Trust. This Committee met 4 times during the fiscal year ended October 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 4 times during the fiscal year ended October 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 5 times during the fiscal year ended October 31, 2023.
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 5 times during the fiscal year ended October 31, 2023.
Annually, the Board evaluates its performance and that of its Committees, including the effectiveness of the Board’s Committee structure.
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.
With respect to valuation, the Advisor provides periodic reports to the Board and Investment Committee that enables the Board to oversee the Advisor,
as each fund's valuation designee, in assessing, managing and reviewing material risks associated with fair valuation determinations, including material
conflicts of interest. In addition, the Board reviews the Advisor's performance of an annual valuation risk assessment under which the Advisor seeks to
identify and enumerate material valuation risks which are or may be impactful to the funds including, but not limited to (1) the types of investments held
(or intended to be held) by the funds, giving consideration to those investments' characteristics; (2) potential market or sector shocks or dislocations
which may affect the ongoing valuation operations; (3) the extent to which each fair value methodology uses unobservable inputs; (4) the proportion of
each fund's investments that are fair valued as determined in good faith, as well as their contributions to a fund's returns; (5) the use of fair value
methodologies that rely on inputs from third-party service providers; and (6) the appropriateness and application of the methods for determining and
calculating fair value. The Advisor reports any material changes to the risk assessment, along with appropriate actions designed to manage such risks,
to 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.
As required by rule 18f-4 under the 1940 Act, funds that engage in derivatives transactions, other than limited derivatives users, generally must adopt
and implement written derivatives risk management program (the “Derivatives Risk Management Program”), that is reasonably designed to manage the
funds' derivatives risks, while taking into account the funds' derivatives and other investments. This program includes risk guidelines, stress testing,
internal reporting and escalation and periodic review of the program. To the extent that the funds invest in derivatives, on a quarterly and annual, the
Advisor will provide the Board with written reports that address the operation, adequacy and effectiveness of the funds' Derivatives Risk Management
Program, which is generally designed to assess and manage derivatives risk.
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.
The fund pays fees to its Independent Trustees. Trustees also are reimbursed for travel and other out-of-pocket expenses. Each Independent Trustee
receives in the aggregate from the fund and the other closed-end funds in the John Hancock fund Complex an annual retainer of $40,000.
The following table provides information regarding the compensation paid by the fund and the other investment companies in the John Hancock Fund
Complex to the Independent Trustees for their services during the fund’s fiscal year ended October 31, 2023.
The Trust does not have a pension or retirement plan for any of its Trustees or officers.
There were approximately 179 series in the John Hancock Fund Complex as of October 31, 2023.
Mr. Burgess retired as Trustee effective as of December 31, 2022.
Effective September 21, 2023, Ms. Lizarraga is no longer a Trustee.
Ms. Harrison retired as Trustee as of May 1, 2023.
Trustee Ownership of Shares of the Funds
The table below sets forth the aggregate dollar range of equity securities beneficially owned by the Trustees in the fund and in all John Hancock funds
overseen by each Trustee as of December 31, 2023. The information as to beneficial ownership is based on statements furnished to the fund by the
Trustees. Each of the Trustees has all voting and investment powers with respect to the shares indicated.
Dean C. Garfield placed orders to purchase shares of certain John Hancock closed-end funds on December 29, 2023 and such orders settled on January 2, 2024.
As of February 1, 2024, the officers and Trustees of the fund as a group owned beneficially less than 1% of the outstanding shares of the fund.
To the best knowledge of the fund, the shareholders (principal holders) listed below owned more than 5% of the fund’s shares as of February 1, 2024.
Information related to these shareholders is as of the date indicated and may be different as of February 1, 2024. A shareholder who owns beneficially
more than 25% of a fund is deemed to be a control person of that fund and can determine the outcome of a shareholder meeting with respect to a
proposal directly affecting that share class.
| | |
SIT Investment Associates Inc. | | |
First Trust Portfolios LP | | |
1 As of December 31, 2020
2 As of December 31, 2023
Investment Advisory and Other Services
A discussion regarding the basis for the Trustees’ approval of the Advisory Agreement and the Subadvisory Agreements is available in the fund’s most
recent shareholder report for the fiscal year ended October 31.
The Advisor is a Delaware limited liability company whose principal offices are located at 200 Berkeley Street, Boston, Massachusetts 02116 and
serves as the fund’s investment advisor. The Advisor is registered with the SEC as an investment advisor under the Advisers Act.
Founded in 1968, the Advisor is an indirect principally owned subsidiary of John Hancock Life Insurance Company (U.S.A.), a subsidiary of Manulife
Financial Corporation (“Manulife Financial” or the “Company”). Manulife Financial is the holding company of The Manufacturers Life Insurance Company
(the “Life Company”) and its subsidiaries. John Hancock Life Insurance Company (U.S.A.) and its subsidiaries (“John Hancock”) today offer a broad
range of financial products and services, including whole, term, variable, and universal life insurance, as well as college savings products, mutual funds,
fixed and variable annuities, long-term care insurance and various forms of business insurance. Additional information about John Hancock may be
found on the Internet at johnhancock.com.
The Advisor has contractually agreed to waive a portion of its management fee and/or reimburse expenses for certain funds of the John Hancock group
of funds complex, including the fund (the participating portfolios). This waiver is based upon aggregate net assets of all the participating portfolios. The
amount of the reimbursement is calculated daily and allocated among all the participating portfolios in proportion to the daily net assets of each fund.
During the year ended October 31, 2023, this waiver amounted to 0.01% of the fund’s average daily net assets. This arrangement expires on July 31,
2025, unless renewed by mutual agreement of the fund and the Advisor based upon a determination that this is appropriate under the circumstances at
that time.
The Advisor’s parent company has been helping individuals and institutions work toward their financial goals since 1862. The Advisor offers investment
solutions managed by institutional money managers, taking a disciplined team approach to portfolio management and research, leveraging the
expertise of seasoned investment professionals. The Advisor has been managing closed-end funds since 1971. As of December 31, 2023, the Advisor
had total assets under management of approximately $153.7 billion.
Manulife Financial Corporation 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, New York Stock Exchange (the “NYSE”), and the Philippine
Stock Exchange, and under '945' in Hong Kong. Manulife Financial Corporation can be found on the Internet at manulife.com.
The Advisor serves as investment advisor to the fund and is responsible for monitoring the subadvisor’s services to the fund.
The fund has entered into an investment management contract dated July 1, 2009 (the “Advisory Agreement”) with the Advisor. As compensation for its
advisory services under the Advisory Agreement, the Advisor receives a fee from the fund, calculated and paid daily, at an annual rate of the fund’s
average daily gross assets.
The following table shows the advisory fee that the fund incurred and paid to the Advisor for the last three fiscal years ended October 31, 2023,
October 31, 2022, and October 31, 2021.
Pursuant to the Advisory Agreement and subject to the general supervision of the Trustees, the Advisor selects, contracts with, and compensates the
subadvisor to manage the investments and determine the composition of the assets of the fund; provided, that any contract with the subadvisor (a
“Subadvisory Agreement”) shall be in compliance with and approved as required by the 1940 Act, except for such exemptions therefrom as may be
granted to the fund or the Advisor. The Advisor monitors the subadvisor’s management of the fund’s investment operations in accordance with the
investment objectives and related investment policies of the fund, reviews the performance of the subadvisor’s and reports periodically on such
performance to the Board.
Pursuant to the Advisory Agreement, the Advisor has entered into a Subadvisory Agreement with Epoch to provide day-to-day portfolio management of
the fund and to implement the fund’s portfolio management strategies and investment objective. The Advisory Agreement provides that the Advisor may
terminate any Subadvisory Agreement entered into and directly assume any functions performed by the subadvisor, upon approval of the Board.
The fund pays all expenses of its organization, operations and business.
The Advisory Agreement had an initial period of two years and continues from year to year so long as such continuance is approved at least annually: (i)
by the vote of a majority of the Independent Trustees; and (ii) either by the Board or by the vote of a majority of the outstanding shares of the fund.
The Advisory Agreement may be terminated at any time without penalty upon sixty (60) days’ written notice by the Board or the Advisor, as applicable, or
by the vote of the majority of the outstanding shares of the fund. The Advisory Agreement will terminate automatically in the event of its assignment. The
Subadvisory Agreement terminates automatically upon the termination of the Advisory Agreement.
The Advisory Agreement provides that, in the absence of willful misfeasance, bad faith, gross negligence or reckless disregard of its obligations or
duties to the fund under such agreements on the part of the Advisor, the Advisor shall not be liable to the fund or to any shareholder for any loss
sustained in connection with the purchase, holding, redemption or sale of any security on behalf of the fund.
The fund has entered into a management-related service contract dated July 1, 2009 and re-executed on June 30, 2020 (the “Service Agreement”) with
JHIM, under which the fund receives Non-Advisory Services. These “Non-Advisory Services” include, but are not limited to, legal, tax, accounting,
valuation, financial reporting and performance, compliance, service provider oversight, portfolio and cash management, project management office,
EDGAR conversion and filing, graphic design, and other services that are not investment advisory in nature.
JHIM is reimbursed by the fund for its costs in providing Non-Advisory Services to the fund under the Service Agreement. The following table shows the
expenses incurred by JHIM in providing services under the Services Agreement for the last three fiscal years ended October 31, 2023, October 31,
2022 and October 31, 2021.
The Service Agreement had an initial period of two years and continues from year to year 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 fund or JHIM may terminate the Service Agreement at any time
without penalty upon 60 days’ written notice to the other party. The Service Agreement may be amended by mutual written agreement of the parties,
without obtaining shareholder approval.
JHIM is not liable for any error of judgment or mistake of law or for any loss suffered by the fund in connection with the matters to which the Service
Agreement relates, except losses resulting from willful misfeasance, bad faith or negligence by JHIM in the performance of its duties or from reckless
disregard by JHIM of its obligations under the Service Agreement.
The Advisor entered into a consulting agreement dated September 21, 2007 (“Consulting Agreement”) with its affiliate
Manulife Investment Management (North America) Limited (formerly, John Hancock Asset Management a Division of Manulife Asset Management
(North America) Limited) (“Manulife IM (NA)”). Manulife IM (NA) is located at 200 Bloor Street East, Toronto, Ontario, Canada, M4W1EW. Manulife IM
(NA) is a wholly owned subsidiary of Manulife Financial, a publicly traded company based in Toronto, Canada. Manulife IM (NA) has been an investment
advisor since 1979 and manages registered investment companies. As of December 31, 2023, Manulife IM (NA) had approximately $19.94 billion in
assets under management.
Under the Consulting Agreement and as the Advisor may request from time to time, Manulife IM (NA) consults with the Advisor on matters relating to the
application of U.S. federal income tax laws and regulations to the operations of the fund and assists the Advisor with compliance monitoring and the
implementation and use of compliance systems and in addressing and legal and regulatory matters related to the fund. Manulife IM (NA) does not have
any day-to-day portfolio management responsibilities or regularly provide investment advice to the Advisor regarding the fund and its portfolio. In return
for its consulting and other services, the Advisor (and not the fund) pays Manulife IM (NA) a fee.
The Advisor has entered into a Subadvisory Agreement dated June 27, 2013 with the subadvisor (the “subadvisory
Agreement”). The subadvisor handles the fund’s portfolio management activities, subject to oversight by the Advisor. The subadvisor, founded in 2004,
is a wholly-owned subsidiary of the Toronto-Dominion Bank. As of December 31, 2023, the subadvisor managed on a worldwide basis more than
$34.3 billion for mutual funds and institutional investors such as pension plans, endowments and foundations. The subadvisor is located at 1 Vanderbilt
Avenue, New York, NY 10017.
Under the terms of the Subadvisory Agreement, the subadvisor is responsible for implementing the fund’s investment equity strategy on a day-to-day
basis, all subject to the supervision and direction of the Board and the Advisor. For services rendered by the subadvisor under the Subadvisory
Agreement, the Advisor (and not the fund) pays the subadvisor a fee.
The Subadvisory Agreement had an initial period of two years and continues from year to year so long as such continuance is approved at least annually:
(i) by the Board or by the holders of a majority of its outstanding voting securities and (ii) by a majority of the Trustees who are not “interested persons”
(as defined in the 1940 Act) of any party to the Subadvisory Agreement. The Subadvisory Agreement terminates automatically in the event of its
assignment or upon termination of the Advisory Agreement and may be terminated without penalty upon 60 days’ written notice at the option of the
Advisor, the subadvisor, by the Board or by a vote of a majority of the fund’s outstanding shares. As discussed above, the Advisor may terminate the
Subadvisory Agreement and directly assume responsibility for the services provided by the subadvisor upon approval by the Board without the need for
approval of the shareholders of the fund.
The Subadvisory Agreement provides that in the absence of willful misfeasance, bad faith, gross negligence or reckless disregard for its obligations and
duties thereunder, the subadvisor is not liable for any error or judgment or mistake of law or for any loss suffered by the fund.
Portfolio Manager Information
The subadvisor handles the fund’s portfolio management activities, subject to oversight by the Advisor. The individuals jointly and primarily responsible
for the day-to-day management of the fund’s portfolio are listed below.
The following table presents information regarding accounts other than the fund for which each portfolio manager has day-to-day management
responsibilities. Accounts are grouped into three categories: (i) other investment companies, (ii) other pooled investment vehicles, and (iii) other
accounts. To the extent that any of these accounts pay advisory fees based on account performance, 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 chart is each portfolio manager’s investment in the fund.
The following tables reflect approximate information as of October 31, 2023:
| Other Registered Investment | | |
| | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
Michael A. Welhoelter, CFA | | | | | | |
| | | | | | |
*Note: (*) represents the number and value of accounts, within the total accounts that are subject to a performance-based advisory fee.
Portfolio Manager Ownership of Shares of the Fund
For purposes of these tables, “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.
| | |
| | |
| | |
| | |
Michael A. Welhoelter, CFA | | |
As of March 31, 2024, William W. Priest, CFA will no longer serve as a portfolio manager.
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 (
., 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 (
. 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 (
., 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.
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 senior leadershp with input from the employee’s
supervisor and the Human Resources Department. The level of compensation for each employee is based on a number of factors including individual
performance, firm performance and marketplace compensation analysis and information.
For senior employees, a portion of their annual performance bonus is deferred, typically with a three-year vesting schedule, and invested in
Epoch-managed investment vehicles 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. Senior management 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.
The fund’s proxy voting policies and procedures (the “fund’s Procedures”) delegate to Epoch the responsibility to vote all proxies relating to securities
held by the fund in accordance with Epoch’s proxy voting policies and procedures. Epoch has a duty to vote such proxies in the best interests of the fund
and its shareholders. Complete descriptions of the fund’s Procedures and the proxy voting procedures of Epoch are set forth in Appendix B to this SAI.
It is possible that conflicts of interest could arise for Epoch when voting proxies. Such conflicts could arise, for example, when Epoch or its affiliate has a
client or other 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 the fund, its investment advisor or principal underwriter or any of their affiliates has an interest in the vote.
In the event that Epoch becomes aware of a material conflict of interest, the fund’s Procedures generally require Epoch to follow any conflicts
procedures that may be included in Epoch’s proxy voting procedures. The conflict procedures generally will include one or more of the following:
voting pursuant to the recommendation of a third party voting service;
voting pursuant to pre-determined voting guidelines; or
referring voting to a special compliance or oversight committee.
The specific conflicts procedures of Epoch are set forth in Epoch’s proxy voting procedures included in Appendix B. While these conflicts procedures
may reduce, they will not necessarily eliminate, any influence on proxy voting of conflicts of interest.
Although Epoch has a duty to vote all proxies on behalf of the fund, it is possible that Epoch 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 Epoch from
trading the shares in the marketplace for a period of time, Epoch may determine that it is not in the best interests of the fund to vote the proxies. Epoch
also may choose not to recall securities that have been lent 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 the fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is available
(i) without charge, on jhinvestments.com and (ii) on the SEC’s website at sec.gov.
Determination of Net Asset Value
The fund’s net asset value per Common Share (“NAV”) is normally determined each business day at the close of regular trading on the NYSE (typically
4:00
p.m.
Eastern Time, on each business day that the NYSE is open) by dividing the fund’s net assets by the number of Common Shares outstanding. 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 Securities and Exchange
Commission and applicable regulations. On holidays or other days when the NYSE is closed, the NAV is not calculated. 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 Common Shares may be significantly affected on days when a shareholder will not be
able to purchase or sell the fund’s Common Shares.
The Board has designated the fund’s Advisor as the valuation designee to perform fair value functions for the 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
the 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
the 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 open-end investment companies that are not
exchange-traded funds (“ETFs”) held by the fund are valued based on the NAVs of such other investment companies.
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 the fund may hold or 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.
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 the 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). The use of fair value pricing has the effect of
valuing a security based upon the price the 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 the fund’s investment in an open-end investment company that is not an ETF, which (as noted above) is valued at such investment company’s
NAV, the prospectus for such investment company explains the circumstances and effects of fair value pricing for that investment company.
Pursuant to the Subadvisory Agreement, the Subadvisor is responsible for placing all orders for the purchase and sale of portfolio securities of the fund.
The Subadvisor has no formula for the distribution of the fund’s brokerage business; rather it places orders for the purchase and sale of securities with
the primary objective of obtaining the most favorable overall results for the fund and the Subadvisor’s other clients. The cost of securities transactions
for the fund primarily consists of brokerage commissions or dealer or underwriter spreads. Fixed-income securities and money market instruments
generally are traded on a net basis and normally do not 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 Subadvisor 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.
Brokerage Commissions Paid
The following table shows the aggregate amount of brokerage commissions paid by the fund for the last three fiscal years ended October 31, 2023,
October 31, 2022, and October 31, 2021.
No brokerage commissions paid by the fund during the last three fiscal years were to any broker that: (i) is an affiliated person of the fund; (ii) is an
affiliated person of an affiliated person of the fund; or (iii) has an affiliated person that is an affiliated person of the fund, Advisor, Subadvisor, or principal
underwriter.
Selection of Brokers or Dealers to Effect Trades
Epoch works primarily with well-known established brokers, choosing them based on the quality and capability of the research and execution services.
This enhances Epoch’s investment research, portfolio management and trading capabilities (collectively referred to as the “Services”), the ability to
execute the order at the best price, financial stability and many other factors relevant to trading in domestic and international markets. Epoch currently
does not engage in certain transactions that can lead to heightened counterparty or credit risk such as swap transactions, prime brokerage or
repurchase agreements. Transactions are executed by the approved broker and settled directly with the client’s custodian.
New brokers are approved by the Broker Approval and Monitoring Committee after the completion of a due diligence review to determine that the broker
does not present an unusually high reputational, financial or operational risk to Epoch’s clients. Epoch maintains a list of approved brokers which is
coded within the Trading System (“Charles River Investment Management System” or “CRIMS”). CRIMS restricts users from executing trades with
brokers who are not on the approved broker list. Access to add or delete brokers from CRIMS is limited to certain members of the Operations
Department. Periodic broker review surveys are conducted with the portfolio managers, traders and analysts to assess the quality of service delivered
by the brokers. The results of these reviews are assessed and related rankings analyzed to determine whether any amendments to the approved broker
list are required. These reviews are performed semi-annually.
Epoch recognizes the impact of transaction costs on the performance of client portfolios. To evaluate these costs, Epoch currently uses transaction cost
analysis tools from Investment Technologies Group (ITG) and FX Transparency. These platforms provide a number of ways to evaluate the cost and
effectiveness of trading for client portfolios.
Soft Dollar Considerations
Consistent with its policy of seeking best execution for its Clients when selecting broker-dealers to conduct transactions, Epoch may receive brokerage
or research products and services that fall within the “safe harbor” established by Section 28(e) of the Securities Exchange Act of 1934.
Epoch will only utilize soft-dollar credits, including commission sharing credits, to pay for brokerage or research products and services that are eligible
under the Section 28(e) safe-harbor, or for which a documented and reasonable mixed-use allocation can be performed. No soft-dollar credit
arrangement or credit sharing arrangement may be entered into without the prior approval of the CCO and the relevant Investment Personnel. Epoch will
not utilize soft-dollar credits to correct trade errors, nor will the Firm make pre-commitments of trading volume to broker-dealers.
Certain clients require that their accounts be custodied at broker-dealers that do not generate soft dollar commissions or otherwise limit Epoch's ability
to generate soft dollar commissions for their accounts. Such accounts will not pay commissions for soft dollar research but will benefit from the soft
dollar research paid for by other accounts managed by Epoch.
Trade Aggregation by the Subadvisor
Epoch typically manages client accounts based on a model portfolio which is designed to achieve the investment objectives of the strategy chosen by
the client. Epoch conducts transactions in client accounts to reasonably match the model portfolios daily, weekly, monthly, or as needed. Epoch may not
conduct transactions on behalf of clients in the wrap fee programs as frequently as Epoch do on behalf of other clients for several reasons, including
that certain transactions for the client accounts in the wrap fee programs may be de minimis due to the wrap fee programs’ lower minimum account
balances. Epoch places orders for accounts that have directed it to use a specific broker, such as accounts in the wrap fee programs, after trading for
other accounts has begun or has been completed. Because of directed brokerage agreements with wrap sponsors, Epoch is unable to aggregate wrap
or managed account transactions with orders for other accounts advised or managed by Epoch. When a model change occurs, Epoch may place orders
for its institutional relationships before placing orders in SMA/Wrap and UMA relationships. Model changes are communicated to its service provider
intraday for trading. When a change to a strategy model occurs, and where the strategy is on more than one wrap or managed account program, the
service provider will use a rotation list in order to determine the sequencing of order placement among the wrap or managed account sponsors.
Affiliated Underwriting Transactions by the Subadvisor
The Board has approved procedures in conformity with Rule 10f-3 under the 1940 Act whereby the fund may purchase securities that are offered in
underwritings in which an affiliate of the Advisor or a subadvisor participates. These procedures prohibit the fund from directly or indirectly benefiting
an Advisor or subadvisor affiliate in connection with such underwritings. In addition, for underwritings where an Advisor or subadvisor affiliate
participates as a principal underwriter, certain restrictions may apply that could, among other things, limit the amount of securities that the fund could
purchase.
Commission Recapture Program
The Board has approved the fund’s participation in a commission recapture program. Commission recapture is a form of institutional discount
brokerage that returns commission dollars directly to the fund. It provides a way to gain control over the commission expenses incurred by the
subadvisor, which can be significant over time and thereby reduces expenses, improves cash flow and conserves assets. The 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 fund.
Additional Information Concerning Taxes
The following discussion of U.S. federal income tax matters is based on the advice of K&L Gates LLP counsel to the fund. The fund intends to elect to be
treated and to qualify each year as a regulated investment company (“RIC”) under the Internal Revenue Code of 1986, as amended (the “Code”).
To qualify as a RIC for income tax purposes, the fund must derive at least 90% of its annual gross income from dividends, interest, payments with
respect to securities loans, gains from the sale or other disposition of stock, securities or 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 stock, securities and currencies, and net income
derived from an interest in a qualified publicly traded partnership. A “qualified publicly traded partnership” is a publicly traded partnership that meets
certain requirements with respect to the nature of its income. To qualify as a RIC, the fund must also satisfy certain requirements with respect to the
diversification of its assets. The fund must have, at the close of each quarter of the taxable year, at least 50% of the value of its total assets represented
by cash, cash items, U.S. government securities, securities of other regulated investment companies, and other securities that, in respect of any one
issuer, do not represent more than 5% of the value of the assets of the fund nor more than 10% of the voting securities of that issuer. In addition, at
those times not more than 25% of the market value (or fair value if market quotations are unavailable) of the fund’s assets can be invested in securities
(other than United States government securities or the securities of other regulated investment companies) of any one issuer, or of two or more issuers,
which the fund controls and which are engaged in the same or similar trades or businesses or related trades or businesses, or of one or more qualified
publicly traded partnerships. If the 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 pursuant to Treasury
Regulations to be adopted, and (ii) the fund pays an excise tax equal to the excess non-qualifying income. If the 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 6 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.
As a RIC, the fund generally will not be subject to U.S. federal income tax on its investment company taxable income (as that term is defined in the Code,
but without regard to the deductions for dividends paid) and net capital gain (the excess of net long-term capital gain over net short-term capital loss), if
any, that it distributes in each taxable year to its shareholders; provided that it distributes at least the sum of 90% of its investment company taxable
income and 90% of its net tax-exempt interest income for such taxable year. The fund intends to distribute to its shareholders, at least annually,
substantially all of its investment company taxable income, net tax-exempt interest income and net capital gain. In order to avoid incurring a
nondeductible 4% U.S. federal excise tax obligation, the Code requires that the fund distribute (or be deemed to have distributed) by December 31 of
each calendar year an amount at least equal to the sum of (i) 98% of its ordinary income for such year, (ii) 98.2% of its capital gain net income (which is
the excess of its realized net long-term capital gain over its realized net short-term capital loss), generally computed on the basis of the one-year period
ending on October 31 of such year, after reduction by any available capital loss carryforwards and (iii) 100% of any ordinary income and capital gain net
income from the prior year (as previously computed) that were not paid out during such year and on which the fund paid no U.S. federal income tax.
Under current law, provided that the fund qualifies as a RIC for U.S. federal income tax purposes, the fund should not be liable for any income, corporate
excise or franchise tax in the Commonwealth of Massachusetts.
If the fund does not qualify as a RIC or fails to satisfy the 90% distribution requirement for any taxable year, subject to the opportunity to cure such
failures under applicable provisions of the Code as described above, the fund’s taxable income will be subject to corporate income taxes, and
distributions from earnings and profits, including distributions of net capital gain (if any), will generally constitute ordinary dividend income for
U.S. federal income tax purposes. To the extent so designated by the fund, such distributions generally would be eligible (i) to be treated as qualified
dividend income in the case of individual and other noncorporate shareholders and (ii) for the dividends received deduction (“DRD”) in the case of
corporate shareholders. In addition, in order to requalify for taxation as a RIC, the fund may be required to recognize unrealized gains, pay substantial
taxes and interest, and make certain distributions.
For U.S. federal income tax purposes, distributions paid out of the 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 the 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 (maximum rates of 20%, 15%, or 0% for individuals depending on the amount of their taxable income for the year). This tax
treatment applies only if certain holding period requirements and other requirements are satisfied by the shareholder and the dividends are attributable
to qualified dividend income received by the fund itself. For this purpose, “qualified dividend income” means dividends received by the fund from
United States corporations and “qualified foreign corporations,” provided that the fund satisfies certain holding period and other requirements in
respect of the stock of such corporations. There can be no assurance as to what portion of the fund’s dividend distributions will qualify for favorable
treatment as qualified dividend income. An additional 3.8% Medicare tax will also apply in the case of some individuals.
Shareholders receiving any distribution from the fund in the form of additional shares pursuant to the 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.
Dividends of investment company taxable income appropriately reported by the fund and received by corporate shareholders of the fund will qualify for
the DRD to the extent of the amount of qualifying dividends received by the fund from domestic corporations for the taxable year. A dividend received by
the fund will not be treated as a qualifying dividend (i) to the extent the stock on which the dividend is paid is considered to be “debt-financed” (generally,
acquired with borrowed funds), (ii) if the fund fails to meet certain holding period requirements for the stock on which the dividend is paid or (iii) to the
extent that the fund is under an obligation (pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially
similar or related property. Moreover, the DRD may be disallowed or reduced if the corporate shareholder fails to satisfy the foregoing requirements with
respect to its shares of the fund or by application of the Code.
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 the 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 the fund owned for one year or less will be taxable as ordinary income.
A fund generally may elect to defer a 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.
The 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. If the shares are held as a capital asset, the gain or loss will be a capital gain or loss. The current maximum tax rate
applicable to net capital gains recognized by individuals and other non-corporate taxpayers is (i) the same as the maximum ordinary income tax rate for
gains recognized on the sale of capital assets held for one year or less, or (ii) for gains recognized on the sale of capital assets held for more than one
year (as well as certain capital gain distributions) 20%, 15%, or 0% for individuals depending on the amount of their taxable income for the year. An
additional 3.8% Medicare tax will also apply in the case of some individuals.
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 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 Common 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 the fund (or of another fund),
on or before January 31 of the calendar year following the calendar year in which the sale of the shares occurs, pursuant to the 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.
For federal income tax purposes, the fund is generally permitted to carry forward a net capital loss incurred in any taxable year, for an unlimited period
to offset net capital gains, if any, during its taxable years following the year of the loss. Capital losses carried forward will retain their character as either
short-term or long-term capital losses. To the extent subsequent net capital gains are offset by such losses, they would not result in federal income tax
liability to the fund and would not be distributed as such to shareholders.
Below are the capital loss carryforwards available to the fund as of October 31, 2023 to the extent provided by regulations, to offset future net realized
capital gains:
| | | |
John Hancock Tax-Advantaged Global Shareholder Yield Fund | | | |
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 will also be
subject to this tax. Dividends and capital gains distributed by the fund, and gain realized on redemption of fund shares, will constitute investment
income of the type subject to this tax.
Dividends and distributions on the fund’s shares generally are subject to U.S. 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 the fund’s net asset value reflects gains that are either
unrealized, or realized but not distributed. Such realized gains may be required to be distributed even when the fund’s net asset value also reflects
unrealized losses. 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 the fund may be “spilled back” and treated as paid by the fund (except for purposes of the non-deductible 4%
U.S. 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.
The fund will inform shareholders of the source and tax status of all distributions promptly after the close of each calendar year.
The fund (or its administrative agent) is required to report to the IRS and furnish to shareholders the cost basis information and holding period for the
fund’s shares purchased on or after January 1, 2012, and repurchased by the fund on or after that date. The fund will permit shareholders to elect from
among several permitted cost basis methods. In the absence of an election, the fund will use a default cost basis method. The cost basis method 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.
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.
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 the fund as an investment through such plans.
The fund may recognize gain (but not loss) from a constructive sale of certain “appreciated financial positions” if the fund enters into a short sale,
offsetting notional principal contract, or forward contract transaction with respect to the appreciated position or substantially identical property.
Appreciated financial positions subject to this constructive sale treatment include interests (including options and forward contracts and short sales) in
stock and certain other instruments. Constructive sale treatment does not apply if the transaction is closed out not later than thirty days after the end of
the taxable year in which the transaction was initiated, and the underlying appreciated securities position is held unhedged for at least the next sixty
days after the hedging transaction is closed.
Gain or loss from a short sale of property generally is considered as capital gain or loss to the extent the property used to close the short sale
constitutes a capital asset in the fund’s hands. Except with respect to certain situations where the property used to close a short sale has a long-term
holding period on the date the short sale is entered into, gains on short sales generally are short-term capital gains. A loss on a short sale will be treated
as a long-term capital loss if, on the date of the short sale, “substantially identical property” has been held by the fund for more than one year. In
addition, entering into a short sale may result in suspension of the holding period of “substantially identical property” held by the fund.
Gain or loss on a short sale generally will not be realized until such time as the short sale is closed. However, as described above in the discussion of
constructive sales, if the fund holds a short sale position with respect to securities that have appreciated in value, and it then acquires property that is
the same as or substantially identical to the property sold short, the fund generally will recognize gain on the date it acquires such property as if the
short sale were closed on such date with such property. Similarly, if the fund holds an appreciated financial position with respect to securities and then
enters into a short sale with respect to the same or substantially identical property, the fund generally will recognize gain as if the appreciated financial
position were sold at its fair market value on the date it enters into the short sale. The subsequent holding period for any appreciated financial position
that is subject to these constructive sale rules will be determined as if such position were acquired on the date of the constructive sale.
The fund’s transactions in futures contracts and options will be subject to special provisions of the Code that, among other things, may affect the
character of gains and losses realized by the fund (
., may affect whether gains or losses are ordinary or capital, or short-term or long-term), may
accelerate recognition of income to the fund and may defer fund losses. These rules could, therefore, affect the character, amount and timing of
distributions to shareholders. These provisions also (a) will require the fund to mark-to-market certain types of the positions in its portfolio (
., treat
them as if they were closed out), and (b) may cause the fund to recognize income without receiving cash with which to make distributions in amounts
necessary to satisfy the 90% distribution requirement for qualifying to be taxed as a RIC and the distribution requirement for avoiding excise taxes. The
fund will monitor its transactions, will make the appropriate tax elections and will make the appropriate entries in its books and records when it acquires
any futures contract, option or hedged investment in order to mitigate the effect of these rules and prevent disqualification of the fund from being taxed
as a RIC.
Further, certain of the fund’s investment practices are subject to special and complex U.S. federal income tax provisions that may, among other things,
(i) convert dividends that would otherwise constitute qualified dividend income into short-term capital gain or ordinary income taxed at the higher rate
applicable to ordinary income, (ii) treat dividends that would otherwise be eligible for the corporate dividends received deduction as ineligible for such
treatment, (iii) disallow, suspend or otherwise limit the allowance of certain losses or deductions, (iv) convert long-term capital gain into short-term
capital gain or ordinary income, (v) convert an ordinary loss or deduction into a capital loss (the deductibility of which is more limited), (vi) cause the
fund to recognize income or gain without a corresponding receipt of cash, (vii) adversely affect the time as to when a purchase or sale of stock or
securities is deemed to occur, (viii) adversely alter the characterization of certain complex financial transactions, and (ix) produce income that will not
qualify as good income for purposes of the 90% annual gross income requirement described above. While it may not always be successful in doing so,
the fund will seek to avoid or minimize any adverse tax consequences of its investment practices.
Dividends and interest received, and gains realized, by the fund on non-U.S. securities may be subject to income, withholding or other taxes imposed by
foreign countries and United States possessions (collectively “foreign taxes”) that would reduce the return on its securities. Tax conventions between
certain countries and the United States, however, may reduce or eliminate foreign taxes, and many foreign countries do not impose taxes on capital
gains in respect of investments by U.S. investors. Depending on the number of non-U.S. shareholders in the fund, however, such reduced foreign
withholding tax rates may not be available for investments in certain jurisdictions.
The fund may invest in the stock of “passive foreign investment companies” (“PFICs”). A PFIC is any foreign corporation (with certain exceptions) that, in
general, meets either of the following tests: (1) at least 75% of its gross income is passive or (2) an average of at least 50% of its assets produce, or are
held for the production of, passive income. Under certain circumstances, the fund will be subject to U.S. federal income tax on a portion of any “excess
distribution” received on the stock of a PFIC or of any gain from disposition of that stock (collectively “PFIC income”), plus interest thereon, even if the
fund distributes the PFIC income as a taxable dividend to its shareholders. The balance of the PFIC income will be included in the fund’s investment
company taxable income and, accordingly, will not be taxable to it to the extent it distributes that income to its shareholders.
If the fund invests in a PFIC and elects to treat the PFIC as a “qualified electing fund” (“QEF”), then in lieu of the foregoing tax and interest obligation, the
fund will be required to include in income each year its pro rata share of the QEF’s annual ordinary earnings and net capital gain—which it may have to
distribute to satisfy the distribution requirement and avoid imposition of the excise tax—even if the QEF does not distribute those earnings and gain to
the fund. In most instances it will be very difficult, if not impossible, to make this election because of certain of its requirements.
The fund may elect to “mark-to-market” its stock in any PFIC. “Marking-to-market,” in this context, means including in ordinary income each taxable year
the excess, if any, of the fair market value of a PFIC’s stock over the fund’s adjusted basis therein as of the end of that year. Pursuant to the election, the
fund also would be allowed to deduct (as an ordinary, not capital, loss) the excess, if any, of its adjusted basis in PFIC stock over the fair market value
thereof as of the taxable year-end, but only to the extent of any net mark-to-market gains (reduced by any prior deductions) with respect to that stock
included by the fund for prior taxable years under the election. The fund’s adjusted basis in each PFIC’s stock with respect to which it has made this
election will be adjusted to reflect the amounts of income included and deductions taken thereunder. The reduced rates for “qualified dividend income”
are not applicable to (i) dividends paid by a foreign corporation that is a PFIC, (ii) income inclusions from a QEF election with respect to a PFIC, and (iii)
ordinary income from a “mark-to-market” election with respect to a PFIC.
Under Section 988 of the Code, gains or losses attributable to fluctuations in exchange rates between the time the fund accrues income or receivables
or expenses or other liabilities denominated in a non-U.S. currency and the time the fund actually collects such income or receivables or pays such
liabilities generally are treated as ordinary income or loss. Similarly, gains or losses on non-U.S. currency forward contracts and the disposition of debt
securities denominated in a non-U.S. currency, to the extent attributable to fluctuations in exchange rate between the acquisition and disposition dates,
also are treated as ordinary income or loss.
If, at the end of the fiscal year, more than 50% of the value of the total assets of the fund is represented by direct investments in stock or securities of
non-U.S. corporations, the fund may make an election that allows shareholders whose income from the fund is subject to U.S. taxation at the graduated
rates applicable to U.S. citizens, residents or domestic corporations to claim a foreign tax credit or deduction (but not both) on their U.S. income tax
return. In such a case, the amounts of qualified foreign income taxes paid by the fund would be treated as additional income to fund shareholders from
non-U.S. sources and as foreign taxes paid by fund shareholders. If the fund’s investments in stock or securities of non-U.S. corporations do not meet
the 50% threshold requirement, such election will not be available to the fund. Investors should consult their tax advisors for further information relating
to the foreign tax credit and deduction, which are subject to certain restrictions and limitations (including a holding period requirement applied at both
the fund and shareholder level imposed by the Code).
If a shareholder realizes a loss on disposition of the fund’s shares of $2 million or more in any single taxable year (or $4 million or more in any
combination of taxable years in which the transaction is entered into and the five succeeding taxable years) for an individual shareholder, corporation or
Trust or $10 million or more in any single taxable year (or $20 million or more in any combination of taxable years in which the transaction is entered
into and the five succeeding taxable years) 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. The fact
that a loss is reportable under these regulations does not affect the legal determination of whether the taxpayer’s treatment of the loss is proper.
Shareholders should consult their tax advisers to determine the applicability of these regulations in light of their individual circumstances.
Amounts paid by the fund to individuals and certain other shareholders who have not provided the fund with their correct taxpayer identification number
(“TIN”) and certain certifications required by the IRS as well as shareholders with respect to whom the fund has received certain information from the
IRS or a broker may be subject to “backup” withholding of U.S. federal income tax arising from the fund’s taxable dividends and other distributions as
well as the gross proceeds of sales of shares, at a rate of 24%. An individual’s TIN generally is his or her social security number. Backup withholding is
not an additional tax. Any amounts withheld under the backup withholding rules from payments made to a shareholder may be refunded or credited
against such shareholder’s U.S. federal income tax liability, if any; provided that the required information is furnished to the IRS.
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.
Dividend distributions are in general subject to a U.S. withholding tax of 30% when paid to a nonresident alien individual, foreign estate or trust, a
foreign corporation, or a foreign partnership (“foreign shareholder”). Persons who are resident in a country, such as the U.K., that has an income tax
treaty with the U.S. may be eligible for a reduced withholding rate (upon filing of appropriate forms), and are urged to consult their tax advisors
regarding the applicability and effect of such a treaty. Distributions of capital gain dividends paid by the fund to a foreign shareholder, and any gain
realized upon the sale of fund shares by such a shareholder, will ordinarily not be subject to U.S. taxation, unless the recipient or seller is a nonresident
alien individual who is present in the United States for more than 182 days during the taxable year. Such distributions and sale proceeds may be
subject, however, to backup withholding, unless the foreign investor certifies his non-U.S. residency status. Also, foreign shareholders with respect to
whom income from the fund is “effectively connected” with a U.S. trade or business carried on by such shareholder will in general be subject to
U.S. federal income tax on a net basis on the income derived from the fund at the graduated rates applicable to U.S. citizens, residents or domestic
corporations, whether such income is received in cash or reinvested in shares, and, in the case of a foreign corporation, also may be subject to a branch
profits tax. Properly-designated dividends are generally exempt from U.S. federal withholding tax where they are (i) “interest-related dividends” paid in
respect of the fund’s “qualified net interest income” (generally, the 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 the fund’s “qualified short-term gains” (generally, the excess of the fund’s net short-term
capital gain over the fund’s long-term capital loss for such taxable year). Depending on its circumstances, the 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. The fund’s capital gain distributions will also be exempt from such withholding. Again, foreign
shareholders who are residents in a country with an income tax treaty with the United States may obtain different tax results, and are urged to consult
their tax advisors.
The Foreign Account Tax Compliance Act (FATCA), imposes a 30% U.S. withholding tax on certain U.S. source payments, including interest (even if the
interest is otherwise exempt from the withholding rules described above), dividends and other fixed or determinable annual or periodical income
(“Withholdable Payments”), if paid to a foreign financial institution, unless such institution registers with the IRS and enters into an agreement with the
IRS or with a governmental authority in its own jurisdiction to collect and provide substantial information regarding U.S. account holders, including
certain account holders that are foreign entities with U.S. owners, with such institution, or such institution is otherwise deemed to be compliant with, or
is exempt from, FATCA. The legislation also generally imposes a withholding tax of 30% on Withholdable Payments made to a non-financial foreign entity
unless such entity provides the withholding agent with a certification that it does not have any substantial U.S. owners or a certification identifying the
direct and indirect substantial U.S. owners of the entity. These withholding and reporting requirements will generally apply to income payments made
after June 30, 2014. A withholding tax that would apply to the gross proceeds from the disposition of certain investment property and that was
scheduled to go into effect in 2019 would be eliminated by proposed regulations (having immediate effect while pending). Non-U.S. shareholders are
urged to consult with their own tax advisors regarding the possible implications of this legislation on their investment in the fund.
The foregoing briefly summarizes some of the important U.S. federal income tax consequences to Common Shareholders of investing in Common
Shares, reflects U.S. federal tax law as of the date of this SAI, and does not address special tax rules applicable to certain types of investors, such as
corporate and non-U.S. investors. Unless otherwise noted, this discussion assumes that an investor is a United States person and holds Common
Shares as a capital asset. This discussion is based upon present provisions of the Code, the regulations promulgated thereunder, and judicial and
administrative ruling authorities, all of which are subject to change or differing interpretations by the courts or the IRS retroactively or prospectively.
Investors should consult their tax advisors regarding other U.S. federal, state or local tax considerations that may be applicable to their particular
circumstances, as well as any proposed tax law changes.
The fund is an organization of the type commonly known as a “Massachusetts business trust.” Under Massachusetts law, shareholders of such a trust
may, in certain circumstances, be held personally liable as partners for the obligations of the trust. The Declaration of Trust contains an express
disclaimer of shareholder liability in connection with fund property or the acts, obligations or affairs of the fund. The Declaration of Trust, together with
the fund’s By-laws, also provides for indemnification out of fund property of any shareholder held personally liable for the claims and liabilities to which a
shareholder may become subject by sole reason of being or having been a shareholder. Thus, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which the fund itself is unable to meet its obligations. The fund has been advised by its
counsel that the risk of any shareholder incurring any liability for the obligations of the fund is remote.
The Declaration of Trust provides that the Trustees will not be liable for errors of judgment or mistakes of fact or law; but nothing in the Declaration of
Trust protects a Trustee against any liability to the fund or its shareholders to which he or she would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of his or her office. Voting rights are not cumulative
with respect to the election of Trustees, which means that the holders of more than 50% of the shares voting for the election of Trustees can elect 100%
of the Trustees and, in such event, the holders of the remaining less than 50% of the shares voting on the matter will not be able to elect any Trustees.
The Declaration of Trust provides that the fund will comply with Section 16 of the 1940 Act. Pursuant to Section 16(c), no person shall serve as a
Trustee if shareholders holding two-thirds of the outstanding shares have removed him from that office either by a written declaration filed with the
fund’s custodian or by votes cast at a meeting called for that purpose. The Declaration of Trust further provides that the Trustees of the fund shall
promptly call a meeting of the shareholders for the purpose of voting upon a question of removal of any such Trustee or Trustees when requested in
writing to do so by the record holders of not less than 10% of the outstanding shares.
Effective January 22, 2016, the Board of Trustees of the fund amended and restated in its entirety the Declaration of Trust. The amendments to the
Declaration of Trust include, among other changes, provisions that: (i) clarify certain duties, responsibilities, and powers of the Trustees; (ii) clarify that,
other than as provided under federal securities laws, the shareholders may only bring actions involving the fund derivatively; (iii) provide that any action
brought by a shareholder related to the fund will be brought in Massachusetts state or federal court, and that, if a claim is brought in a different
jurisdiction and subsequently changed to a Massachusetts venue, the shareholder will be required to reimburse the fund for such expenses; and (iv)
clarify that shareholders are not intended to be third-party beneficiaries of fund contracts. The foregoing description of the Declaration of Trust is
qualified in its entirety by the full text of the Declaration of Trust, effective as of January 22, 2016, which is available by writing to the Secretary of the
fund at 200 Berkeley Street, Boston, Massachusetts 02116, and also on the SEC’s and Secretary of the Commonwealth of Massachusetts’ websites.
Custodian and Transfer Agent
The fund’s portfolio securities are held pursuant to a custodian agreement between the fund and State Street Bank and Trust Company (“State Street”),
State Street Bank and Trust Company, One Congress Street, Suite 1, Boston, Massachusetts 02114. Under the custodian agreement, State Street
performs custody, foreign custody manager and fund accounting services.
Computershare Shareowner Services LLC, P.O. Box 43006, Providence, RI 02940-3078, is the transfer agent, dividend paying agent and registrar of
the fund.
Independent Registered Public Accounting Firm
The
financial statementsof the fund for the fiscal period ended October 31, 2023, including the related financial highlights that appear in the
Prospectus have been audited by PricewaterhouseCoopers LLP (“PwC”), independent registered public accounting firm, as indicated in their report with
respect thereto, and are incorporated herein by reference.
PwC is the independent registered public accounting firm for the Fund, providing audit services, tax return preparation, and assistance and consultation
with respect to the preparation of filings with the SEC.
The
financial statementsof the fund for the fiscal period ended October 31, 2023, are incorporated herein by reference from each fund’s most recent
Annual Report to shareholders filed with the SEC on Form N-CSR pursuant to Rule 30b2-1 under the 1940 Act.
Incorporation by Reference
As noted above, this SAI is part of a registration statement filed with the SEC. Pursuant to the final rule and form amendments adopted by the SEC on
April 8, 2020 to implement certain provisions of the Economic Growth, Regulatory Relief, and Consumer Protection Act, including General Instruction
A.2 of Form N-2, the fund is permitted to “incorporate by reference” the information filed with the SEC, which means that the fund can disclose
important information to you by referring you to those documents. The information incorporated by reference is considered to be part of this SAI, and
later information that the fund files with the SEC will automatically update and supersede this information.
The documents listed below, and any reports and other documents subsequently filed with the SEC pursuant to Rule 30(b)(2) under the 1940 Act and
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the termination of the offering will be incorporated by reference into this SAI and
deemed to be part of this SAI from the date of the filing of such reports and documents:
The fund’s
Prospectus, dated March 1, 2024, filed with this SAI;
You may obtain copies of any information incorporated by reference into this SAI, at no charge, by calling 800-225 6020 (toll-free), from the fund’s
website
https://www.jhinvestments.com/investments/closed-end-fund/international-equity-funds/tax-advantaged-global-shareholder-yield-fund-ce-hty
, or from the SEC’s website at sec.gov. The fund’s periodic reports filed pursuant to Section 30(b)(2) of
the 1940 Act and Sections 13 and 15(d) of the Exchange Act, as well as the Prospectus and the Statement of Additional Information, are available on
the fund’s website
https://www.jhinvestments.com/investments/closed-end-fund/international-equity-funds/tax-advantaged-global-shareholder-yield-fund-ce-hty
. The SEC maintains an internet site that contains reports, proxy and information statements, and other
information regarding issuers that file electronically with the SEC, and you also may obtain a copy of any information regarding the fund filed with the
SEC from the SEC’s website (sec.gov).
The fund, the Advisor, the subadvisor and John Hancock Investment Management Distributors LLC each have adopted Codes of Ethics that comply with
Rule 17j-1 under the 1940 Act. Each Code of Ethics permits personnel subject to that Code of Ethics to invest in securities, including securities that
may be purchased or held by the fund.
These Codes of Ethics may be obtained by calling the SEC at 202-942-8090. These Codes of Ethics also are available on the EDGAR Database on the
SEC’s website at sec.gov. Copies of these Codes of Ethics may be obtained, after paying a duplicating fee, by electronic request at the following e-mail
address: public info@sec.gov.
The fund’s Prospectus, any related Prospectus Supplements, and this SAI do not contain all of the information set forth in the Registration Statement
that the fund has filed with the SEC. The complete Registration Statement may be obtained from the SEC upon payment of the fee prescribed by its
Rules and Regulations.
John Hancock Tax-Advantaged Global Shareholder Yield Fund
Statement of Additional Information
March 1, 2024
John Hancock Investment Management LLC
200 Berkeley Street
Boston, Massachusetts 02116
800-225-6020
Epoch Investment Partners, Inc.
1 Vanderbilt Avenue
New York, NY 10017
State Street Bank and Trust Company
One Congress Street, Suite 1
Boston, Massachusetts 02114
Computershare Shareowner Services, LLC
P.O. Box 43006
Providence RI 02940-3078
Independent Registered Public Accounting Firm
PricewaterhouseCoopers, LLP
101 Seaport Boulevard, Suite 500
Boston Massachusetts 02210
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.
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.
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’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.
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.
Obligations rated Aaa are judged to be of the highest quality, subject to the lowest level of credit risk.
Obligations rated Aa are judged to be of high quality and are subject to very low credit risk.
Obligations rated A are considered upper-medium grade and are subject to low credit risk.
Obligations rated Baa are judged to be medium-grade and subject to moderate credit risk and as such may possess certain speculative
characteristics.
Obligations rated Ba are judged to be speculative and are subject to substantial credit risk.
Obligations rated B are considered speculative and are subject to high credit risk.
Obligations rated Caa are judged to be speculative of poor standing and are subject to very high credit risk.
Obligations rated Ca are highly speculative and are likely in, or very near, default, with some prospect of recovery of principal and interest.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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 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.
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.
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.
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.
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.
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.
Highly speculative. ‘B’ ratings indicate that material credit risk is present.
Substantial credit risk. “CCC” ratings indicate that substantial credit risk is present.
Very high levels of credit risk. “CC” ratings indicate very high levels of credit risk.
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.
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
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:
Issuers (or supporting institutions) rated Prime-1 have a superior ability to repay short-term debt obligations.
Issuers (or supporting institutions) rated Prime-2 have a strong ability to repay short-term debt obligations.
Issuers (or supporting institutions) rated Prime-3 have an acceptable ability to repay short-term obligations.
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 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 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 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.
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.
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.
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 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.
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.
Good short-term credit quality.
Good intrinsic capacity for timely payment of financial commitments.
Fair short-term credit quality.
The intrinsic capacity for timely payment of financial commitments is adequate.
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.
High short-term default risk.
Default is a real possibility.
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.
Default.
Indicates a broad-based default event for an entity, or the default of a short-term obligation.
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.
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.
This designation denotes strong credit quality. Margins of protection are ample, although not as large as in the preceding group.
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.
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.
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.
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.
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.
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 |
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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:
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.
Satisfactory capacity to pay principal and interest, with some vulnerability to adverse financial and economic changes over the term of the notes.
Speculative capacity to pay principal and interest.
'D' is assigned upon failure to pay the note when due, completion of a distressed exchange offer, or the filing of a bankruptcy petition or the taking of
similar action and where default on an obligation is a virtual certainty, for example due to automatic stay provisions.
Fitch Public Finance Ratings
See FITCH SHORT-TERM ISSUER OR OBLIGATIONS RATINGS above.
Appendix B – Proxy Voting Policies and Procedures
The Trust Procedures and the proxy voting procedures of the Advisor and the subadvisors are set forth in Appendix B.
5E: Proxy Voting Policies and Procedures for the Adviser
General Compliance Policies for Trust & Adviser
Section 5: Fiduciary Standards & Affiliated Persons Issues
| | |
| Applies to | | Adviser |
| Risk Theme | | Proxy Voting |
| Policy Owner | | Jim Interrante |
| Effective Date | | 12-1-2019 |
5E. Advisers Proxy Voting Policy
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.
5E. Advisers Proxy Voting Policy
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.
| | | | |
Version History |
| Date | | Effective Date | | Approving Party |
| 1 | | 01-01-2012 | | |
| 2 | | 02-01-2015 | | |
| 3 | | Sept. 2015 | | |
| 4 | | 05-01-2017 | | |
| 5 | | 12-01-2019 | | |
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.
Proxy Voting and Class Action Monitoring
Policy
Epoch maintains proxy voting authority for Client accounts, unless otherwise instructed by the client. Epoch votes proxies in a manner that it believes is most likely to enhance the economic value of the underlying securities held in Client accounts. Epoch maintains a Proxy Voting Group comprised of investment team, operations and compliance representatives that meet at least on a quarterly basis. Epoch will not respond to proxy solicitor requests unless Epoch determines that it is in the best interest of Clients to do so.
In light of Epoch’s fiduciary duty to its Clients, and given the complexity of the issues that may be raised in connection with proxy votes, the Firm has retained Institutional Shareholder Services (“ISS”). ISS is an independent adviser that specializes in providing a variety of fiduciary-level proxy-related services to institutional investment managers. The services provided to the Firm include in-depth research, voting recommendations, vote execution and recordkeeping. Epoch requires ISS to notify the Company if ISS experiences a material conflict of interest in the voting of Clients’ proxies.
ISS will pre-populate the Firm’s votes on the ISS’s electronic voting platform with ISS’s recommendations based on the Firm’s voting instructions to ISS. To the extent Epoch becomes aware that an issuer that is the subject of ISS’s voting recommendation intends to file or has filed additional solicitating materials (“Additional Information”) after the Firm has received the ISS’s voting recommendation, but before the proxy submission deadline, and the Additional Information would reasonably be expected to affect the Adviser’s voting determination, Epoch will consider the Additional Information prior to exercising voting authority to confirm that the Firm is voting in its client’s best interest.
Notwithstanding the foregoing, the Firm will use its best judgment to vote proxies in the manner it deems to be in the best interests of its Clients. In the event that judgment differs from that of ISS, or that investment teams within Epoch wish to vote differently with respect to the same proxy in light of their specific strategy, the Firm will memorialize the reasons supporting that judgment and retain a copy of those records for the Firm’s files. The Compliance Department will periodically review the voting of proxies to ensure that votes which have diverged from the judgment of ISS, were voted consistent with the Firm’s fiduciary duties.
On at least an annual basis, the CCO or a designee will review this Proxy Voting and Class Action Monitoring policy.
Procedures for Lent Securities and Issuers in Share-blocking Countries
At times, neither Epoch nor ISS will be allowed to vote proxies on behalf of Clients when those Clients have adopted a securities lending program. The Firm recognizes that Clients who have adopted securities lending programs have made a general determination that the lending program provides a greater economic benefit than retaining the ability to vote proxies. Notwithstanding this fact, in the event that the Firm becomes aware of a proxy voting matter that would enhance the economic value of the client’s position and that position is lent out, the Firm will make reasonable efforts to inform the Client that neither the Firm nor ISS is able to vote the proxy until the Client recalls the lent security.
In certain markets where share blocking occurs, shares must be “frozen” for trading purposes at the custodian or sub-custodian in order to vote. During the time that shares are blocked, any pending trades will not settle. Depending on the market, this period can last from one day to three weeks. Any sales that must be executed will settle late and potentially be subject to interest charges or other punitive fees. For this reason, in blocking markets, the Firm retains the right to vote or not, based on the determination of the Firm’s Investment Personnel. If the decision is made to vote, the Firm will process votes through ISS unless other action is required as detailed in this policy.
Effective Date - October 1, 2022
Procedures for Conflicts of Interest
Epoch has identified the following potential conflicts of interest:
| | • | | Whether there are any business or personal relationships between Epoch, or an employee of Epoch, and the officers, directors or shareholder proposal proponents of a company whose securities are held in Client accounts that may create an incentive to vote in a manner that is not consistent with the best interests of Epoch’s Clients; |
| | • | | Whether Epoch has any other economic incentive to vote in a manner that is not consistent with the best interests of its Clients; or |
| | • | | Whether a proxy relates to a company that is a Client of Epoch.1 |
If a conflict of interest has been identified (as outlined above), then Epoch shall bring the proxy voting issue first to the attention of the Proxy Voting Group. The Proxy Voting Group may engage affected Clients and/or Epoch employees to ensure the relevant proxies are voted in a manner that is consistent with Epoch’s fiduciary duties.
Procedures for Proxy Solicitation
In the event that any officer or employee of Epoch receives a request to reveal or disclose Epoch’s voting intention on a specific proxy event, then the officer or employee must forward the solicitation to the CCO.
Procedures for Voting Disclosure
Upon request, Epoch will provide Clients with their specific proxy voting history.
Initial and Ongoing Diligence of Proxy Service Provider
The Operations Department will conduct additional diligence on ISS to ensure the provider continues to have the capacity and competency to adequately analyze proxy issues on an annual basis. As part of the due diligence process, the Head of Operations, or a designee, obtains a completed questionnaire from ISS that assists Epoch in evaluating ISS’s services and any potential conflicts of interest that may exist.
Recordkeeping
Epoch must maintain the documentation described in the following section for a period of not less than five (5) years, the first two (2) years at its principal place of business. The Firm will be responsible for the following procedures and for ensuring that the required documentation is retained.
Client Request to Review Proxy Votes
If a Client requests to review the proxy votes, the Relationship Management team will:
| | • | | Record the identity of the Client, the date of the request, and the disposition (e.g., provided a written or oral response to Client’s request, referred to third party, not a proxy voting Client, other dispositions, etc.) in a suitable place. |
| | • | | Furnish the information requested, free of charge, to the Client within a reasonable time period (within 10 business days). Maintain a copy of the written record provided in response to client’s written (including e-mail) or oral request. |
| 1 | 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. |
Effective Date - October 1, 2022
Proxy Voting Records
The proxy voting record is periodically provided to Epoch by ISS. Included in these records are:
| | • | | Documents prepared or created by Epoch that were material to making a decision on how to vote, or that memorialized the basis for the decision. |
| | • | | Documentation or notes or any communications received from third parties, other industry analysts, third party service providers, company’s management discussions, etc. that were material in the basis for the decision. |
Disclosure
Epoch includes a description of its policies and procedures regarding proxy voting and class actions in Part 2 of Form ADV, along with a statement that Clients and Investors contact Epoch at 212 303-7200 to obtain a copy of these policies and procedures and information about how Epoch voted with respect to the Client’s securities. Any request for information about proxy voting or class actions should be promptly forwarded to Epoch at the number above and we will respond to any such requests.
The CCO will ensure that Part 2A of Form ADV is updated as necessary to reflect: (i) all material changes to this policy; and (ii) regulatory requirements related to proxy voting disclosure.
As a matter of policy, Epoch does not disclose how it expects to vote on upcoming proxies. Additionally, Epoch does not disclose the way it voted proxies to unaffiliated third parties without a legitimate need to know such information.
Class Action Litigation Settlement
Generally, Epoch does not have responsibility to file proofs of claim or engage in class action litigation.
Epoch does not complete proofs-of-claim on behalf of Clients for current or historical holdings; however, Epoch will assist Clients with collecting information relevant to filing proofs-of-claim when such information is in the possession of Epoch.
Effective Date - October 1, 2022
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| Manulife Investment Management global proxy voting policy and procedures | | | |  |
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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.
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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
| | • | | The right to vote is a basic component of share ownership and is an important control mechanism to ensure that a company is managed in the best interests of its shareholders. Where clients delegate proxy voting authority to Manulife IM, Manulife IM has a fiduciary duty to exercise voting rights responsibly. |
| | • | | Where Manulife IM is granted and accepts responsibility for voting proxies for client accounts, it will seek to ensure proxies are received and voted in the best interests of the client with a view to maximize the economic value of their equity securities unless it determines that it is in the best interests of the client to refrain from voting a given proxy. |
| | • | | If there is any potential material proxy-related conflict of interest between Manulife IM and its clients, identification and resolution processes are in place to provide for determination in the best interests of the client. |
| | • | | Manulife IM will disclose information about its proxy voting policies and procedures to its clients. |
| | • | | Manulife IM will maintain certain records relating to proxy voting. |
| 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:
| | • | | Robust oversight, including a strong and effective board with independent and objective leaders working on behalf of shareholders; |
| | • | | Mechanisms to mitigate risk such as effective internal controls, board expertise covering a firm’s unique risk profile, and routine use of key performance indicators to measure and assess long-term risks; |
| | • | | A management team aligned with shareholders through remuneration structures that incentivize long- term performance through the judicious and sustainable stewardship of company resources; |
| | • | | Transparent and thorough reporting of the components of the business that are most significant to shareholders and stakeholders with focus on the firm’s long-term success; and |
| | • | | Management focused on all forms of capital, including environmental, social, and human capital. |
The Manulife Investment Management voting principles (voting principles) outlined in Appendix B provide guidance for our voting decisions. An active decision to invest in a firm reflects a positive conviction in the investee company and we generally expect to be supportive of management for that reason. Manulife IM may seek to challenge management’s recommendations, however, if they contravene these voting principles or Manulife IM otherwise determines that doing so is in the best interest of its clients.
| 2 | Further information on Sustainable Investing at Manulife IM can be found at manulifeim.com/institutional. |
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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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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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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:
| | • | | Manulife IM’s aggregated holdings across all client accounts represent 2% or greater of issued capital; |
| | • | | A meeting agenda includes shareholder resolutions related to environmental and social risk management issues, or where the subject of a shareholder resolution is deemed to be material to our investment decision; or |
Manulife IM may also review voting resolutions for issuers where an investment team engaged with the firm within the previous two years to seek a change in behavior.
After review, the ESG team may provide research and advice to investment staff in line with the voting principles.
Manulife IM also has an internal proxy voting working group (working group) comprising senior managers from across Manulife IM including the equity investment team, legal, compliance, and the ESG team. The working Group operates under the auspices of the Manulife IM Public Markets Sustainable Investing Committee. The Working group regularly meets to review and discuss voting decisions on shareholder proposals or instances where a portfolio manager recommends a vote different than the recommendation of the proxy voting services provider.
Manulife IM clients retain the authority and may choose to lend shareholdings. Manulife IM, however, generally retains the ability to restrict shares from being lent and to recall shares on loan in order to preserve proxy voting rights. Manulife IM is focused in particular on preserving voting rights for issuers where funds hold 2% or more of an issuer as aggregated across funds. Manulife IM has a process in place to systematically restrict and recall shares on a best efforts basis for those issuers where we own an aggregate of 2% or more.
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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:
| | • | | Costs associated with voting the proxy exceed the expected benefits to clients; |
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Manulife Investment Management global proxy voting policy and procedures
| | • | | Underlying securities have been lent out pursuant to a client’s securities lending program and have not been subject to recall; |
| | • | | Short notice of a shareholder meeting; |
| | • | | Requirements to vote proxies in person; |
| | • | | Restrictions on a nonnational’s ability to exercise votes, determined by local market regulation; |
| | • | | Restrictions on the sale of securities in proximity to the shareholder meeting (i.e., share blocking); |
| | • | | Requirements to disclose commercially sensitive information that may be made public (i.e., reregistration); |
| | • | | Requirements to provide local agents with power of attorney to facilitate the voting instructions (such proxies are voted on a best-efforts basis); or |
| | • | | The inability of a client’s custodian to forward and process proxies electronically. |
If a Manulife IM portfolio manager believes it is in the best interest of a client to vote proxies in a manner inconsistent with the policy, the portfolio manager will submit new voting instructions to a member of the ESG team with rationale for the new instructions. The ESG team will then support the portfolio manager in developing voting decision rationale that aligns with this policy and the voting principles. The ESG team will then submit the vote change to the working group. The working group will review the change and ensure that the rationale is sound, and the decision will promote the long-term success of the issuer.
On occasion, there may be proxy votes that are not within the research and recommendation coverage universe of the proxy voting service provider. Portfolio managers responsible for the proxy votes will provide voting recommendations to the ESG team, and those items may be escalated to the working group for review to ensure that the voting decision rationale is sound, and the decision will promote the long-term success of the issuer. the Manulife IM proxy operations team will be notified of the voting decisions and execute the votes accordingly.
Manulife IM does not engage in the practice of “empty voting” (a term embracing a variety of factual circumstances that result in a partial, or total, separation of the right to vote at a shareholders meeting from beneficial ownership of the shares on the meeting date). Manulife IM prohibits investment managers from creating large hedge positions solely to gain the vote while avoiding economic exposure to the market. Manulife IM will not knowingly vote borrowed shares (for example, shares borrowed for short sales and hedging transactions).
Engagement of the proxy voting service provider
Manulife IM has contracted with a third-party proxy service provider to assist with the proxy voting process. Except in instances where a client retains voting authority, Manulife IM will instruct custodians of client accounts to forward all proxy statements and materials received in respect of client accounts to the proxy service provider.
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Manulife Investment Management global proxy voting policy and procedures
Manulife IM has engaged its proxy voting service provider to:
| | • | | Research and make voting recommendations; |
| | • | | Ensure proxies are voted and submitted in a timely manner; |
| | • | | Provide alerts when issuers file additional materials related to proxy voting matters; |
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Manulife Investment Management global proxy voting policy and procedures
| | • | | Perform other administrative functions of proxy voting; |
| | • | | Maintain records of proxy statements and provide copies of such proxy statements promptly upon request; |
| | • | | Maintain records of votes cast; and |
| | • | | Provide recommendations with respect to proxy voting matters in general. |
Scope of proxy voting authority
Manulife IM and our clients shape the proxy voting relationship by agreement provided there is full and fair disclosure and informed consent. Manulife IM may agree with clients to other proxy voting arrangements in which Manulife IM does not assume proxy voting responsibility or will only vote in limited circumstances.3
While the application of our fiduciary duty in the context of proxy voting will vary with the scope of the voting authority we assume, we acknowledge the relationship in all cases remains that of a fiduciary to the client. Beyond the general discretion retained by Manulife IM to withhold from voting as outlined above, Manulife IM may enter a specific agreement with a client not to exercise voting authority on certain matters where the cost of voting would be high or the benefit to the client would be low.
Disclosure of proxy votes
Manulife IM may inform company management of our voting intentions ahead of casting the vote. This is in line with Manulife IM’s objective to provide the opportunity for companies to better understand our investment process, policies, and objectives.
We will not intentionally disclose to anyone else, including other investors, our voting intention prior to casting the vote.
Manulife IM keeps records of proxy voting available for inspection by clients, regulatory authorities, or government agencies.
| 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 Investment Management global proxy voting policy and procedures
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 Investment Management global proxy voting policy and procedures
| | • | | Manulife IM has a business relationship or potential relationship with the issuer; |
| | • | | Manulife IM has a business relationship with the proponent of the proxy proposal; or |
| | • | | Manulife IM members, employees, or consultants have a personal or other business relationship with managers of the business such as top-level executives, corporate directors, or director candidates. |
In addressing any such potential material conflict, Manulife IM will seek to ensure proxy votes are cast in the advisory client’s best interests and are not affected by Manulife IM’s potential conflict. In the event a potential material conflict of interest exists, the working group or its designee will either (i) review the proxy voting decisions to ensure robust rationale, that the voting decision will protect or enhance shareholder value over the long term, and is in line with the best interest of the client; (ii) vote such proxy according to the specific recommendation of the proxy voting services provider; (iii) abstain; or (iv) request the client vote such proxy. The basis for the voting decision, including the process for the determination of the decision that is in the best interests of the client, is recorded.
Voting shares of Manulife Financial Corporation
Manulife Financial Corporation (MFC) is the publicly listed parent company of Manulife IM. Generally, legislation restricts the ability of a public company (and its subsidiaries) to hold shares in itself within its own accounts. Accordingly, the MFC share investment policy outlines the limited circumstances in which MFC or its subsidiaries may, or may not, invest or hold shares in MFC on behalf of MFC or its subsidiaries. 5
The MFC share investment policy does not apply to investments made on behalf of unaffiliated third parties, which remain assets of the client. 6 Such investing may be restricted, however, by specific client guidelines, other Manulife policies, or other applicable laws.
Where Manulife IM is charged with voting MFC shares, we will execute votes in proportion with all other shareholders (i.e., proportional or echo vote). This is intended to neutralize the effect of our vote on the meeting outcome.
Policy responsibility and oversight
The working group oversees and monitors the policy and Manulife IM’s proxy voting function. The working group is responsible for reviewing regular reports, potential conflicts of interest, vote changes, and nonroutine proxy voting items. The working group also oversees the third-party proxy voting service provider. The working group will meet at least monthly and report to the Manulife IM public markets sustainable investing committee and, where requested, the Manulife IM operating committee.
| 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 Investment Management global proxy voting policy and procedures
Manulife IM’s proxy operations team is responsible for the daily administration of the proxy voting process for all Manulife IM operations that have contracted with a third-party proxy voting services provider. Significant proxy voting issues identified by Manulife IM’s proxy operations team are escalated to the chief compliance officer or its designee, and the working group.
The working group is responsible for the proper oversight of any service providers hired by Manulife IM to assist it in the proxy voting process. This oversight includes:
Annual due diligence: Manulife IM conducts an annual due diligence review of the proxy voting research service provider. This oversight includes an evaluation of the service provider’s industry reputation, points of risk, compliance with laws and regulations, and technology infrastructure. Manulife IM also reviews the provider’s capabilities to meet Manulife IM’s requirements, including reporting competencies; the adequacy and quality of the proxy advisory firm’s staffing and personnel; the quality and accuracy of sources of data and information; the strength of policies and procedures that enable it to make proxy voting recommendations based on current and accurate information; and the strength of policies and procedures to address conflicts of interest of the service provider related to its voting recommendations.
Regular Updates: Manulife also requests that the proxy voting research service provider deliver updates regarding any business changes that alter that firm’s ability to provide independent proxy voting advice and services aligned with our policies.
Additional oversight in process: Manulife IM has additional control mechanisms built into the proxy voting process to act as checks on the service provider and ensure that decisions are made in the best interest of our clients. These mechanisms include:
| | • | | Sampling prepopulated votes: Where we use a third-party research provider for either voting recommendations or voting execution (or both), we may assess prepopulated votes shown on the vendor’s electronic voting platform before such votes are cast to ensure alignment with the voting principles. |
| | • | | Decision scrutiny from the working group: Where our voting policies and procedures do not address how to vote on a particular matter, or where the matter is highly contested or controversial (e.g., major acquisitions involving takeovers or contested director elections where a shareholder has proposed its own slate of directors), review by the working group may be necessary or appropriate to ensure votes cast on behalf of its client are cast in the client’s best interest. |
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Manulife Investment Management global proxy voting policy and procedures
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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Manulife 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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Manulife 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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Manulife 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. |
| | 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. |
| | b. | 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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Manulife Investment Management global proxy voting policy and procedures
| | c. | Attendance: A core part of a director’s duties is to remain an engaged and productive participant at board and committee meetings. Directors should, therefore, attend at least 75% of board and committee meetings in the aggregate over the course of a calendar year. |
| | d. | Diversity: In line with the principles expressed in relation to board of independence above, Manulife IM believes boards with strong gender representation are better equipped to manage risks and oversee business resilience over the long term compared to firms with low gender balance. Manulife IM generally expects boards to have at least one woman on the board and encourages companies to aspire to a higher balance of gender representation. Manulife IM also may hold boards in certain markets to a higher standard as market requirements and expectations change. In Canada, Europe, the United Kingdom, and Ireland, for example, we encourage boards to achieve at least one-third female representation. We generally encourage boards to achieve racial and ethnic diversity among their members. We may, in the future, hold nomination committee chairs accountable where the board does not appear to have racial or ethnically diverse members. |
| | e. | Classified/staggered boards: Manulife IM prefers that directors be subject to election and 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. |
| | f. | Overboarding: Manulife IM believes directors should limit their outside board seats in order to ensure that they have the time and attention to provide their director role at a firm in question. Generally, this means directors should not sit on more than five public company boards. The role of CEO requires an individual’s significant time and attention. Directors holding the role of CEO at any public firm, therefore, generally should not sit on more than three public company boards inclusive of the firm at which they hold the CEO role. |
| | g. | Independent chair/CEO: Governance failures can occur where a manager has firm control over a board through the combination of the chair/CEO roles. Manulife IM generally supports the separation of the chair/CEO roles as a means to prevent board capture by management. We may evaluate proposals to separate the chair/CEO roles on a case-by-case basis, for example, however, considering such factors as the establishment of a strong lead independent director role or the temporary need for the combination of the CEO/chair roles to help the firm through a leadership transition. |
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Manulife Investment Management global proxy voting policy and procedures
| | 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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Manulife Investment Management global proxy voting policy and procedures
| | i. | Contested elections: Where there is a proxy contest or a director’s election is otherwise contested, Manulife IM evaluates the proposals on a case-by-case basis. Consideration is given to firm performance, whether there have been significant failures of oversight and whether the proponent for change makes a compelling case that board turnover will drive firm value. |
| | j. | Significant and problematic actions or omissions: Manulife IM believes boards should be held accountable to shareholders in instances where there is a significant failure of oversight that has led to a loss of firm value, transparency failure or otherwise curtailed shareholder rights. Manulife IM generally considers withholding from, or voting against, certain directors in these situations. Some examples of actions that might warrant a vote against directors include, but are not limited to, the following: |
Failure of oversight: Manulife IM may take action against directors where there has been a significant negative event leading to a loss of shareholder value and stakeholder confidence. A failure may manifest itself in multiple ways, including adverse auditor opinions, material misstatements, failures of leadership and governance, failure to manage ESG risks, environmental or human rights violations, and poor sustainability reporting.
Adoption of anti-takeover mechanism: Boards should generally review takeover offers independently and objectively in consideration of the potential value created or lost for shareholders. Manulife IM generally holds boards accountable when they create or prolong certain mechanisms, bylaws or article amendments that act to frustrate genuine offers that may lead to value creation for shareholders. These can include poison pills; classes of shares with differential voting rights; classified, or staggered, board structures; and unilateral bylaw amendments and supermajority voting provisions.
Problematic executive compensation practices: Manulife IM encourages companies to adopt best practices for executive compensation in the markets in which they operate. Generally, this means that pay should be aligned with performance. Manulife IM may hold directors accountable where this alignment is not robust. We may also hold boards accountable where they have not adequately responded to shareholder votes against a previous proposal on remuneration or have adopted problematic agreements or practices (e.g., golden parachutes, repricing of options).
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Manulife 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. |
| | a. | The magnitude of the risk/opportunity: Manulife IM evaluates the level of materiality of a certain environmental or social issue identified in a proposal as it pertains to the firm’s ability to generate value over the long term. This review includes deliberation of the effect an issue will have on the financial statements and/or the cost of capital. |
| | b. | The firm’s current management of the risk/opportunity: Manulife IM analyzes a firm’s current approach to an issue to determine whether the firm has robust plans, infrastructure, and reporting to mitigate the risk or embrace the opportunity. Recent controversies, litigation, or penalties related to a given risk are also considered. |
| | c. | The firm’s current disclosure framework: Manulife IM expects firms to disclose enough information for shareholders to assess the company’s management of environmental and social risks and opportunities material to the business. Manulife IM may support proposals calling for enhanced firm disclosure regarding environmental and social issues where additional information would help our evaluation of a company’s exposure, and response, to those factors. |
| 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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Manulife Investment Management global proxy voting policy and procedures
| | 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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Manulife Investment Management global proxy voting policy and procedures
| | e. | Cost to, or disruption of, the business: When reviewing environmental and social proposals, Manulife IM assesses the potential cost of the requested action against the benefit provided to the firm and its shareholders. Particular attention is paid to proposals that request actions that are overly prescriptive on management or that request a firm exit markets or operations that are essential to its business. |
| III. | Shareholder rights: Manulife IM generally supports management or shareholder proposals that protect, or improve, shareholder rights and opposes proposals that remove, or curtail, existing rights. |
| | a. | Shareholder rights plans (poison pills): Manulife IM generally opposes mechanisms intended to frustrate genuine takeover offers. Manulife IM may, however, support shareholder rights plans where the plan has a trigger of 20% ownership or more and will expire in three years or less. In conjunction with these requirements, Manulife IM evaluates the company’s strategic rationale for adopting the poison pill. |
| | b. | Supermajority voting: Shareholders should have the ability to direct change at a firm based on a majority vote. Manulife IM generally opposes the creation, or continuation, of any bylaw, charter, or article provisions that require approval of more than a majority of shareholders for amendment of those documents. Manulife IM may consider supporting such a standard where the supermajority requirement is intended to protect minority shareholders. |
| | c. | Proxy access: Manulife IM believes that shareholders have a right to appoint representatives to the board that best protect their interests. The power to propose nominees without holding a proxy contest is a way to protect that right and is potentially less costly to management and shareholders. Accordingly, Manulife IM generally supports creation of a proxy access right (or similar power at non-U.S. firms) provided there are reasonable thresholds of ownership and a reasonable number of shareholders can aggregate ownership to meet those thresholds. |
| | d. | Written consent: Written consent provides shareholders the power to formally demand board action outside of the context of an annual general meeting. Shareholders can use written consent as a nimble method of holding boards accountable. Manulife IM generally supports the right of written consent so long as that right is reasonably tailored to reflect the will of a majority of shareholders. Manulife IM may not support such a right, however, where there is a holder with a significant, or controlling, stake. Manulife IM evaluates the substance of any written actual consent proposal in line with these principles. |
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Manulife Investment Management global proxy voting policy and procedures
| | 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. |
| | a. | Advisory votes on executive compensation: While acknowledging that there is no singular model for executive compensation, Manulife IM closely scrutinizes companies that have certain concerning practices which may include: |
| | i. | Misalignment between pay and company performance: Pay should generally move in tandem with corporate performance. Firms where CEO pay remains flat, or increases, though corporate performance remains down relative to peers, are particularly concerning. |
| | ii. | One-time grants: A firm’s one-time grant to an executive, outside of the normal salary, bonus, and long-term award structure, may be indicative of an overall failure of the board to design an effective remuneration plan. A company should have a robust justification for making grants outside of the normal remuneration framework. |
| | iii. | Significant quantity of nonperformance-based pay: Executive pay should generally be weighted more heavily toward performance-based remuneration to create the alignment between pay and performance. Companies should provide a robust explanation for any significant awards made that vest solely based on time or are not otherwise tied to performance. |
| | iv. | Lack of rigor in performance targets: Performance targets should challenge managers to improve corporate performance and outperform peers. Targets should, where applicable, generally align with, or even outpace, guidance; incentivize outperformance against a peer group; and otherwise remain challenging. |
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Manulife Investment Management global proxy voting policy and procedures
| | 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. |
| | vi. | Repricing of options: Resetting the exercise price of outstanding options significantly undermines the incentive nature of the initial option grant. Though a firm may have a strong justification for repricing options, Manulife IM believes that firms should put such decisions to a shareholder vote. Manulife IM may generally oppose an advisory vote on executive compensation where a company has repriced outstanding options for executives without that shareholder approval. |
| | vii. | Adoption of problematic severance agreements (golden parachutes): Manulife IM believes managers should be incentivized to pursue and complete transactions that may benefit shareholders. Severance agreements, if structured appropriately, can provide such inducements. At the same time, however, the significant payment associated with severance agreements could potentially drive managers to pursue transactions at the expense of shareholder value. Manulife IM may generally oppose an executive remuneration proposal where a firm has adopted, or amended, an agreement with an executive that contains an excise tax gross-up provision, permits accelerated vesting of equity upon a change-in-control, allows an executive to unilaterally trigger the severance payment, or pays out in an amount greater than 300% of salary and bonus combined. |
| V. | Capital structure: Manulife IM believes firms should balance the need to raise capital and encourage investment with the rights and interests of the existing shareholder body. Evaluation of proposals to issue shares, repurchase shares, conduct stock splits, or otherwise restructure capital, is conducted on a case- by-case basis with some specific requests covered here: |
| | a. | Common stock authorization: Requests to increase the pool of shares authorized for issuance are evaluated on a case-by-case basis with consideration given to the size of the current pool, recent use of authorized shares by management, and the company rationale for the proposed increase. Manulife IM also generally supports these increases where the company intends to execute a split of shares or pay a stock dividend. |
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Manulife Investment Management global proxy voting policy and procedures
| | 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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Manulife Investment Management global proxy voting policy and procedures
| | c. | Dual class voting structure: Voting power should align with economic interest at a given firm. Manulife IM generally opposes the creation of new classes of stock with differential voting rights and supports the elimination of these structures. |
| VI. | Corporate transactions and restructurings: Manulife IM reviews mergers, acquisitions, restructurings, and reincorporations on a case-by-case basis through the lens of whether the transaction will create shareholder value. Considerations include fairness of the terms, valuation of the event, changes to management and leadership, realization of synergies and efficiencies, and whether the rationale for a strategic shift is compelling. |
| VII. | Cross shareholding: Cross shareholding is a practice where firms purchase equity shares of business partners, customers, or suppliers in support of those relationships. Manulife IM generally discourages this practice as it locks up firm capital that could be allotted to income-generating investments or otherwise returned to shareholders. Manulife IM will review cross shareholding practices at issuers and we encourage issuers to keep cross 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. |
| | a. | Auditor ratification: Manulife IM generally approves the reappointment of the auditor absent evidence that they have either failed in their duties or appear to have a conflict that may not allow independent and objective oversite of a firm. |
| | b. | Auditor rotation: If Manulife IM believes that the independence and objectivity of an auditor 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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